|
The US-Saudi Oil Deal: From “Win-Win” to “Mega-Loose”
|
By F. William Engdahl
Global Research, August 08, 2015
New Eastern Outlook 8 August 2015
|
Url of this article:
http://www.globalresearch.ca/the-us-saudi-oil-deal-from-win-win-to-mega-loose/5467991
|
Who would’ve thought it would come to this? Certainly not the
Obama Administration, and their brilliant geo-political think-tank
neo-conservative strategists.
John Kerry’s brilliant “win-win” proposal of last September
during his September 11 Jeddah meeting with ailing Saudi King Abdullah
was simple: Do a rerun of the highly successful State Department-Saudi
deal in 1986 when Washington persuaded the Saudis to flood the world
market at a time of over-supply in order to collapse oil prices
worldwide, a kind of “oil shock in reverse.” In
1986 was successful in helping to break the back of a faltering Soviet
Union highly dependent on dollar oil export revenues for maintaining its
grip on power.
So, though it was not made public, Kerry and Abdullah agreed on
September 11, 2014 that the Saudis would use their oil muscle to bring
Putin’s Russia to their knees today.
It seemed brilliant at the time no doubt.
On the following day, 12 September 2014, the US Treasury’s
aptly-named Office of Terrorism and Financial Intelligence, headed by
Treasury Under-Secretary David S. Cohen, announced new sanctions against
Russia’s energy giants Gazprom, Gazprom Neft, Lukoil, Surgutneftgas and
Rosneft. It forbid US oil companies to participate with the Russian
companies in joint ventures for oil or gas offshore or in the Arctic.
Then, just as the ruble was rapidly falling and Russian major
corporations were scrambling for dollars for their year-end settlements,
a collapse of world oil prices would end Putin’s reign. That was
clearly the thinking of the hollowed-out souls who pass for statesmen in
Washington today. Victoria Nuland was jubilant, praising the precision
new financial warfare weapon at David Cohen’s Treasury financial
terrorism unit.
In July, 2014 West Texas Intermediate, the benchmark price for US
domestic oil pricing, traded at $101 a barrel. The shale oil bonanza was
booming, making the US into a major oil player for the first time since
the 1970’s.
When WTI hit $46 at the beginning of January this year, suddenly
things looked different. Washington realized they had shot themselves in
the foot.
They realized that the over-indebted US shale oil industry was about
to collapse under the falling oil price. Behind the scenes Washington
and Wall Street colluded to artificially stabilize what then was an
impending chain-reaction bankruptcy collapse in the US shale oil
industry. As a result oil prices began a slow rise, hitting $53 in
February. The Wall Street and Washington propaganda mills began talking
about the end of falling oil prices. By May prices had crept up to $62
and almost everyone was convinced oil recovery was in process. How wrong
they were.
Saudis not happy
Since that September 11 Kerry-Abdullah meeting (curious date to pick,
given the climate of suspicion that the Bush family is covering up
involvement of the Saudis in or around the events of September 11,
2001), the Saudis have a new ageing King, Absolute Monarch and Custodian
of the Two Holy Mosques, King Salman, replacing the since deceased old
ageing King, Abdullah. However, the Oil Minister remains
unchanged—79-year-old Ali al-Naimi. It was al-Naimi who reportedly saw
the golden opportunity in the Kerry proposal to use the chance to at the
same time kill off the growing market challenge from the rising output
of the unconventional USA shale oil industry. Al-Naimi has said
repeatedly that he is determined to eliminate the US shale oil
“disturbance” to Saudi domination of world oil markets.
Not only are the Saudis unhappy with the US shale oil intrusion on
their oily Kingdom. They are more than upset with the recent deal the
Obama Administration made with Iran that will likely lead in several
months to lifting Iran economic sanctions. In fact the Saudis are beside
themselves with rage against Washington, so much so that they have
openly admitted an alliance with arch foe, Israel, to combat what they
see as the Iran growing dominance in the region—in Syria, in Lebanon, in
Iraq.
This has all added up to an iron Saudi determination, aided by close
Gulf Arab allies, to further crash oil prices until the expected wave of
shale oil company bankruptcies—that was halted in January by Washington
and Wall Street manipulations—finishes off the US shale oil
competition. That day may come soon, but with unintended consequences
for the entire global financial system at a time such consequences can
ill be afforded.
According to a recent report by Wall Street bank, Morgan Stanley, a
major player in crude oil markets, OPEC oil producers have been
aggressively increasing oil supply on the already glutted world market
with no hint of a letup. In its report Morgan Stanley noted with visible
alarm, “OPEC has added 1.5 million barrels/day to global supply in the
last four months alone…the oil market is currently 800,000 barrels/day
oversupplied. This suggests that the current oversupply in the oil
market is fully due to OPEC’s production increase since February alone.”
The Wall Street bank report adds the disconcerting note, “We
anticipated that OPEC would not cut, but we didn’t foresee such a sharp increase.”
In short, Washington has completely lost its strategic leverage over
Saudi Arabia, a Kingdom that had been considered a Washington vassal
ever since FDR’s deal to bring US oil majors in on an exclusive basis in
1945.
That breakdown in US-Saudi communication adds a new dimension to the
recent June 18 high-level visit to St. Petersburg by Muhammad bin
Salman, the Saudi Deputy Crown Prince and Defense Minister and son of
King Salman, to meet President Vladimir Putin. The meeting was carefully
prepared by both sides as the two discussed up to $10 billion of trade
deals including Russian construction of peaceful nuclear power reactors
in the Kingdom and supplying of advanced Russian military equipment and
Saudi investment in Russia in agriculture, medicine, logistics, retail
and real estate. Saudi Arabia today is the world’s largest oil producer
and Russia a close second. A
Saudi-Russian alliance on whatever level was hardly in the strategy
book of the Washington State Department planners.…Oh shit!
Now that OPEC oil glut the Saudis have created has cracked the shaky
US effort to push oil prices back up. The price fall is being further
fueled by fears that the Iran deal will add even more to the glut, and
that the world’s second largest oil importer, China, may cut back
imports or at least not increase them as their economy slows down. The
oil market time bomb detonated in the last week of June. The US price of
WTI oil went from $60 a barrel then, a level at which at least many
shale oil producers can stay afloat a bit longer, to $49 on July 29, a
drop of more than 18% in four weeks, tendency down.
Morgan Stanley sounded loud alarm bells, stating that if the trend of
recent weeks continues, “this downturn would be more severe than that
in 1986. As there was no sharp downturn in the 15 years before that, the
current downturn could be the worst of the last 45+ years. If this were
to be the case, there would be nothing in our experience that would be a
guide to the next phases of this cycle…In fact, there may be nothing in
analyzable history.”
‘October Surprise’
October is the next key point for bank decisions to roll-over US
shale company loans or to keep extending credit on the (until now) hope
that prices will slowly recover. If as strongly hinted, the Federal
Reserve hikes US interest rates in September for the first time in the
eight years since the global financial crisis erupted in the US real
estate market in 2007, the highly-indebted US shale oil producers face
disaster of a new scale. Until the past few weeks the volume of US shale
oil production has remained at the maximum as shale producers
desperately try to maximize cash flow, ironically, laying the seeds of
the oil glut globally that will be their demise.
The reason US shale oil companies have been able to continue in
business since last November and not declare bankruptcy is the ongoing
Federal Reserve zero interest rate policy that leads banks and other
investors to look for higher interest rates in the so-called “High
Yield” bond market.
Back in the 1980’s when they were first created by Michael Millken
and his fraudsters at Drexel Burnham Lambert, Wall Street appropriately
called them “junk bonds” because when times got bad, like now for Shale
companies, they turned into junk. A recent UBS bank report states, “the
overall High-Yield market has doubled in size; sectors that witnessed
more buoyant issuance in recent years, like energy and metals mining,
have seen debt outstanding triple or quadruple.”
Assuming that the most recent downturn in WTI oil prices continues
week after week into October, there well could be a panic run to sell
billions of dollars of those High-Yield, high-risk junk bonds. As one
investment analyst notes, “when the retail crowd finally does head for
the exits en masse, fund managers will be forced to come face to face
with illiquid secondary corporate credit markets where a lack of market
depth…has the potential to spark a fire sale.”
The problem is that this time, unlike in 2008, the Federal Reserve
has no room to act. Interest rates are already near zero and the Fed has
bought trillions of dollars of bank bad debt to prevent a
chain-reaction US bank panic.
One option that is not being discussed at all in Washington would be
for Congress to repeal the disastrous 1913 Federal Reserve Act that gave
control of our nation’s money to a gang of private bankers, and to
create a public National Bank, owned completely by the United States
Government, that could issue credit and sell Federal debt without the
intermediaries of corrupt Wall Street bankers as the Constitution
intended. At the same time they could completely nationalize the six or
seven “Too Big To Fail” banks behind the entire financial mess that is
destroying the foundations of the United States and by extension of the
role of the dollar as world reserve currency, of most of the world.
F. William Engdahl is strategic risk consultant
and lecturer, he holds a degree in politics from Princeton University
and is a best-selling author on oil and geopolitics, exclusively for the
online magazine “New Eastern Outlook”.
|
|
Disclaimer: The contents of this article are of sole
responsibility of the author(s). The Centre for Research on
Globalization will not be responsible for any inaccurate or incorrect
statement in this article.
|
|
|
|
No comments:
Post a Comment