With the pain of rock-bottom oil prices leaving producers increasingly desperate, Saudi Arabia now agreed in principle with Russia, to freeze oil output at January levels D essentially paying lip service to the idea of price stabilization, considering that January’s oil output was near a record high. Riyadh’s tepidness towards shoring up oil prices raises a question: Why are the Saudis – long the champion better oil prices – happy to continue the popularity of plentiful, cheap oil exports?
As oilsands punished, tanker lots of cheap Saudi oil sail into Canadian ports daily
As federal and provincial politicians pat on their own the back for his or her global warming ‘leadership,’ and pipeline opponents gloat about stalling construction of new Canadian pipelines, tanker-loads of foreign oil are delivered regularly to Eastern Canadian refineries, including increasing volumes from Saudi Arabia.
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The short response is that the Saudis are conducting a not-so-subtle campaign of monetary warfare against Canada and other upstart oil exporters to permanently cripple their respective oil industries. By enduring some short-term pain at US$35 per barrel or lower, the Saudis can sideline the kind of Canada and Venezuela and ensure a long-term command of the global oil market. Strangely enough, Canada is helping them get it done.
Saudi Arabia isn’t any stranger to using oil as a weapon in the international relations. While everyone is familiar with the oil crises from the 1970s, often overlooked would be the Saudis’ actions in the 1980s. In September 1985, keen to both improve relations using the Usa and belatedly punish the Ussr because of its invasion of Afghanistan, along with other misdeeds in the centre East, Saudi Arabia flooded the world oil market, quadrupling its output in only six months. The Soviets, still floating on the sky-high oil-shock prices from the 1970s and heavily reliant on oil as a chief source of foreign hard currency, were hit hard. Economists place the toll around the Soviet economy at US$20 billion per year, signaling the beginning of no more the Soviet Union.
We are assisting to accelerate the speed of our own energy sector’s decline
In a case of history repeating itself with a twist, Canada in particular now occupies the previous role from the Soviet Union. A burgeoning oil producer with sizeable reserves, and an economy tied closely to the energy sector over the last decade, Canada’s recent rocketing in the list of largest oil exporters has clearly not gone unnoticed. Venezuela, which too enjoyed its own oil boom during the last decade, is in a similar boat. The Saudi’s arch-rival Iran, recently free of punishing economic sanctions, is also set to get into the oil game. Saudi Arabia, meanwhile, has clearly had enough.
While high oil prices benefit – and essentially sustain – the dominion, they also pose significant risk. With competition from Canada and Venezuela, and also the suddenly formidable U.S. shale regions, the Saudis risk losing share of the market to countries without the same political, environmental and ethical baggage. In particular, as greater U.S. share of the market would go to its more politically palatable oil-producing rivals, the Saudis also face the loss of clout with Washington.
Related
- The bleeding isn’t over for that energy sector, regardless of the Saudi Arabia-Russia oil dealFrozen pipelines, expensive tankers with no storage: Russia’s hesitation to chop oil output more than political
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The Saudis have abdicated their long-standing role like a “swing producer” and therefore are content to allow the oil flow, disclaiming any personal responsibility for influencing prices by placing the blame on increased U.S. oil output. The dominion has opposed requests for an emergency OPEC meeting, and was also cool to requires a slash in output during a meeting last week with Venezuela’s oil minister, agreeing in principle only to a freeze at near-record high production levels. Having a plentiful way to obtain oil and cash reserves towards the tune well over US$650 billion to resist a period of wilting prices, the Saudis are well-positioned to merely hunker down and batter its nascent rivals bankrupt.
The twist to this story is available in the way the Canadian government unwittingly plays in to the hands of the Saudis. So proud is the Trudeau government of its action on environmental stewardship and climate change it essentially will the Saudis’ dirty work for them. By tightening the screws on domestic Canadian production while seeing a rise in Saudi-originating imports D the Financial Post reporting recently on the significant rise in imports of Saudi oil by Canada D we’re helping to accelerate the speed of the energy-sector’s decline.
Financial Post
Allan Richarz is a Toronto privacy lawyer.
Twitter.com/allanricharz
