Connect with us

'price

Oil price crash alters priorities, greases skids to new world order

The sustained plunge in global oil prices has brought deep, unexpected shifts on the geopolitical landscape, with impacts felt in the Arctic and the Middle East, and in the fortunes of the American heartland and the future of the Russian-Chinese strategic alliance. A U.S.-engineered market truce has helped energy prices rebound slightly this month after…

Oil price crash alters priorities, greases skids to new world order

The sustained plunge in global oil prices has brought deep, unexpected shifts on the geopolitical landscape, with impacts felt in the Arctic and the Middle East, and in the fortunes of the American heartland and the future of the Russian-Chinese strategic alliance.

A U.S.-engineered market truce has helped energy prices rebound slightly this month after flatlining in April, but analysts say reverberations will likely be felt for years to come as they chip away at the foundational international partnerships in the post-World War II era and create new alliances and rivalries.

Analysts say there is no way the U.S. and its international position will avoid alterations from the oil markets, no matter who sits in the White House the next four years.

The Trump administration’s public pressure on Saudi Arabia this spring to slash oil production sparked tensions with Riyadh that reportedly led to the White House’s decision this month to pull American Patriot missile systems from the kingdom.

The health of the U.S.-Saudi alliance looms large in national security circles. In recent years, U.S. officials sought Saudi support for the administration’s Israeli-Palestinian peace plan and help with the mutual goal of containing Iran.

But America’s own ambitions to be a global energy player, built on a fracking production revolution that all but ended Washington’s dependence on foreign suppliers, could take a major hit if oil prices stay below $50 a barrel indefinitely.

The U.S. could well find itself on the outside looking in as green energy gains momentum and depresses demand for American shale oil. Such an outcome could further strain the relationship between the U.S. and key European allies such as Germany and France, which have largely stuck by an Obama-era emissions reduction deal that President Trump abandoned long before the oil price plummet and COVID-19 pandemic took hold.

Arctic freeze-out

For Russia, meanwhile, a yearslong strategy to deepen its footprint and exploit vast energy resources in the Arctic could fall flat if prices remain low. A frustrated Moscow could respond to the energy crisis in a number of ways, specialists say, perhaps by seeking to expand its influence in Eastern Europe or retreating from conflicts in Libya and Syria.

At the same time, the growing alliance between Russia and China has shown signs of more strength as Russia this week overtook Saudi Arabia as the No. 1 supplier of foreign fuel to China.

Specialists warn of more immediate, deadly consequences.

Incidents such as last year’s attack on Saudi oil facilities, which the Trump administration blames on Iran and its proxies, could become more frequent as oil-rich nations turn to violence to cripple competitors and preserve their place in the remade energy landscape.

“The ongoing struggles for revenue in oil-dependent economies could lead to more regional unrest with incentives to damage one another’s oil-producing capacity,” Marie N. Fagan, chief economist with London Economics International LLC, told reporters on a conference call this week.

More broadly, specialists say, the relative stability of oil markets and the subsequent ties that helped keep the global economy together for decades are facing new pressures.

“As nations come under unprecedented economic and political strains in light of the pandemic, important bilateral relationships that underpinned oil market stability are now realigning,” Amy M. Jaffe, a senior fellow for energy and the environment at the Council on Foreign Relations, wrote in a recent blog post.

“This realignment is creating new geopolitical uncertainties at a time when stronger bilateral and multilateral relations are required.”

The Russia question

Oil prices have crept up in recent weeks after dipping below $20 per barrel last month as economies shut down to contain the COVID-19 outbreak and global travel ground to a near halt. At one point, demand was so low and supply so glutted that oil future prices briefly dipped below zero.

But prices remain at historically low levels. The international benchmark Brent Crude price stuck at roughly $35 a barrel Thursday, and the key U.S. WTI Crude price failed to crest at $34.

Coupled with COVID-19 social distancing shutdowns of factories and airlines, the dramatic price fall has crippled economies around the world but has hit major oil producers such as Russia especially hard. Given the uncertainty of world oil markets, specialists say, the crisis could fundamentally reshape President Vladimir Putin’s foreign policy.

The International Monetary Fund estimates that Russia loses money on oil exports any time global crude dips below $40 a barrel. With current prices hovering barely above $30, many are questioning how Mr. Putin will continue to underwrite his provocative military adventurism in Ukraine, the Middle East and beyond.

William Taylor, a longtime U.S. diplomat and former ambassador to Ukraine, told The Washington Times in a recent interview that Mr. Putin “may have no choice but to rein in some of Russia’s malign activities around the world.”

“It is possible that all these storms combined — the economic, political, financial and health crises — mean he may need to pull back from the adventures in Ukraine, Syria, Libya and Venezuela,” said Mr. Taylor, now with the U.S. Institute of Peace.

Others say Mr. Putin’s grand plan to dominate the Arctic in an age of rising global temperatures could crumble. The Russian leader has said he intends to transform the icy waters of the Arctic into a key commercial corridor with portions largely under Russian control.

Moscow also has undertaken massive energy exploration efforts in the region in the hopes of using the money generated there to keep its economy afloat and fund its foreign policy adventures.

A sustained oil price drop could scramble that strategy.

“We are in a sustained period of economic recession. I am almost worried about Russia’s policy in the Arctic failing and what that means,” Heather Conley, senior vice president for Europe, Eurasia and the Arctic at the Center for Strategic and International Studies, said in a recent interview.

“You have to have the energy prices and global commodity prices to sustain” Russia’s Arctic strategy, she said. “If you don’t, no matter how much you can push it, it’s not going to develop.”

Others have argued that the uncertainty surrounding Russia could ultimately give Washington and its allies a rare strategic window to undercut Moscow’s vexing meddling in certain theaters.

Reshuffling the deck

For all of the negative impacts on Russia, the COVID-19 pandemic and subsequent oil crisis seem to be deepening Moscow’s willingness to align with China rhetorically and strategically.

Russian Foreign Minister Sergey Lavrov, in sharp contrast to Washington and U.S. allies, has heaped praise on China over its response to the pandemic.

Although Russia has viewed China as a potential threat more than a partner in recent decades, U.S. officials say, it has recently coordinated at unprecedented levels with Beijing’s attempts to spread disinformation pinning blame for the pandemic that first emerged in Wuhan, China, on the United States.

Beyond rhetoric and propaganda, there is oil, and Russian exports to China in April were roughly 18% higher than a year earlier. That means Russia has surpassed Saudi Arabia as China’s top crude oil supplier.

Contrary to any hope of getting Russia to “turn to the West to face the threat of China, we’re seeing the opposite dynamic unfolding at the moment,” said Anna Borshchevskaya, a Washington Institute fellow focused on Russia.

Ms. Borshchevskaya said in an interview that “the pandemic has shown Russia and China moving closer together, not just in terms of countering the disease but in terms of strategic rhetoric against Washington.”

But other analysts say that banking on China to be a top customer could prove foolish in a post-COVID world.

“For oil producers, especially the Arab OPEC producers and Russia, relying on China to consume a majority of their future production is a dangerous game,” longtime oil analyst Cyril Widdershoven wrote in a recent piece for OilPrice.com.

“Just as U.S. shale is far too heavily reliant on Cushing storage and paid the price when WTI prices crashed into negative territory as Cushing hit capacity, Arab producers have been hit hard by Chinese demand destruction,” he said.

The Trump administration faces a major decision on whether to loosen U.S. ties with producers such as the Saudis or help them navigate the new market landscape.

Longtime Saudi Arabia expert F. Gregory Gause said the relationship was never based on Saudi oil flowing to the United States in exchange for American security for Riyadh.

“I think the American view of this was always that Saudi Arabian oil was important for the world economy,” Mr. Gause, who teaches at Texas A&M University, said this week during a webinar hosted by the Quincy Institute for Responsible Statecraft.

“Because it was important for the world economy — it was important for our allies in Europe and Asia,” he said, “the U.S.-Saudi relationship had its foundations before the United States imported a single drop of oil from anywhere.”

Asked whether U.S. and Saudi interests still align the way they did in the post-World War II era, Mr. Gause said the answer depends on whether Washington still views oil as a “strategic commodity.”

“If it is, then does the United States want to have some influence in an area that exports more oil than any others?” he said. “I think that that’s an open question and worth debating.”

Sign up for Daily Newsletters

Continue Reading…

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published.

'price

Could the oil price crisis radically redefine US-Saudi relations?

An armada of tankers laden with an estimated 50 million barrels of Saudi Arabian crude is heading towards United States shores – cargo US shale oil producers regard as a foreign invasion delivered by a lower-cost competitor hell-bent on driving them out of business. For President Donald Trump, the timing is particularly vexing. With US…

Could the oil price crisis radically redefine US-Saudi relations?

An armada of tankers laden with an estimated 50 million barrels of Saudi Arabian crude is heading towards United States shores – cargo US shale oil producers regard as a foreign invasion delivered by a lower-cost competitor hell-bent on driving them out of business.
For President Donald Trump, the timing is particularly vexing. With US voters heading to the polls in November, Trump is under fire for his handling of the coronavirus pandemic, while the US economy – a cornerstone of his re-election campaign – is being annihilated by lockdowns.
Now an oil price crash rooted in COVID-19 disruptions and aggravated by Saudi shenanigans has many US oil firms staring down the barrel of bankruptcy. Last week, prices of US benchmark crude turned negative for the first time ever. Tens of thousands of energy jobs in Republican-controlled states are at risk of vanishing. US lawmakers who previously supported the status quo in US-Saudi relations are calling for a ban on crude imports from the kingdom.
More ominously for Saudi Arabia, the threat posed to the US shale patch has landed the 75-year-old alliance between Washington and Riyadh firmly in the electoral crosshairs, heaping pressure on Trump to make good on his signature campaign motto to put “America first”.
The latest inflection point
Despite diametrically opposed core values, the US-Saudi relationship has held together for three-quarters of a century on the strength of mutual security and business interests. But the marriage of convenience has been far from frictionless.
The 1973 oil embargo by the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) helped push the US economy into recession. Images of American motorists queuing in petrol lines are still etched in the nation’s collective consciousness. The kingdom is also inextricably linked with the 9/11 attacks carried out by 19 hijackers, 15 of whom were Saudi nationals.
Over the past two decades, whenever oil prices become uncomfortable for US consumers and businesses, the No Oil Producing and Exporting Cartels Act (NOPEC) tends to rear its head on Capitol Hill. By taking aim at OPEC price fixing, the legislation, which has struggled through the years to find White House support, would strip Saudi Arabia of the sovereign immunity that shields it from a potential tsunami of lawsuits in the US.
The Saudis have also had their grievances with Washington. Riyadh famously bristled at the Obama administration’s efforts to defuse tensions with Iran, Saudi Arabia’s fiercest regional rival.
But the relationship between Riyadh and the White House warmed significantly when Trump took up residency at 1600 Pennsylvania Avenue.
To the kingdom’s delight, the Trump administration unilaterally withdrew from the Iran-nuclear deal in 2018 and went on to slap Tehran with relentless rounds of economic sanctions.
Trump has vigorously supported weapons sales to Riyadh despite its abysmal record on human rights, while his son-in-law Jared Kushner has forged a close relationship with the kingdom’s de facto ruler, Crown Prince Mohammed bin Salman (MBS).
But politicians in Congress have not been nearly as willing to ignore troubling behaviour by Riyadh.
MBS’s disastrous military campaign in Yemen and the profound humanitarian crisis it has spawned prompted efforts in Congress to block weapons sales to Riyadh. US politicians on both sides of the aisle were horrified by the murder of Saudi journalist and US resident Jamal Khashoggi – an assassination US intelligence concluded had been ordered by MBS.
But the existential threat to the US oil and gas sector – and the more than 150,000 Americans directly employed by it – has prompted a backlash against Saudi Arabia arguably not seen since the 1970s.
“The United States-Saudi Arabia relationship was in trouble before the coronavirus and oil double-crisis,” said Bruce Riedel, a senior fellow and director of the Brookings Intelligence Project.
“The Saudis are now losing support across the board politically. Trump and his son-in-law Jared are the only holdouts and that is not a good place to be when oil prices are so low,” Riedel told Al Jazeera.
Price routs and rhetoric
Oil prices started to retreat in January and February as COVID-19 marched across the globe, decimating demand. But they fell off a cliff in March after Saudi Arabia initiated an oil price war in retaliation for Russia’s refusal to back Riyadh’s calls for deep output cuts.
The resulting market carnage roiled US shale oil producers, especially firms that took on heavy debts to drill new wells when prices were higher.
With a strategically crucial industry on the ropes and tens of thousands of jobs on the line, Republicans in Congress – led by legislators from states whose fortunes depend heavily on a thriving domestic oil patch – amped up the rhetoric.
The Saudis were accused of engaging in “economic warfare”. On March 24, Senators Kevin Cramer of North Dakota and Dan Sullivan of Arkansas introduced the Strained Partnership Act calling for the removal of US troops and military equipment from Saudi Arabia unless it slashed output.
As Congressional pressure piled on, Trump personally appealed to MBS and Russian President Vladimir Putin to call a truce and stabilise oil markets.
During a phone call on April 2, Trump told MBS he could not stop US politicians from passing The Strained Partnership Act if OPEC did not curb production, Reuters News Agency reported on Thursday, citing sources familiar with the matter. 
Trump’s diplomatic efforts culminated in an April 12 agreement by OPEC and its allies to scale back production by a record 9.7 million barrels per day (bpd).
But coronavirus has crushed demand by at least 30 million bpd. So while the historic production cut deal rendered the Strained Partnership Act moot, it failed to arrest, let alone reverse the oil price crash. Or calls for Trump to get tough with the Saudis.
“Trump thinks he delivered the deal of the century for everyone a few weeks ago – it doesn’t seem to be working out that way,” Tarik Yousef, senior fellow and director at Brookings Doha Center told Al Jazeera. “At some point, he will have to reinvent his own message.”
Indeed the price rout has since gotten worse as crude supplies continue to overwhelm demand.
Analysts estimate the storage hub in Cushing, Oklahoma – where US benchmark West Texas Intermediate (WTI) crude is delivered – will reach capacity sometime next month.
That prospect triggered yet another historic milestone in oil markets last week when the price of WTI for May delivery plunged to negative $40 a barrel as investors paid to have oil taken off their hands rather than get stuck with crude they have nowhere to stash.
That same day, Trump said he would look into a proposal by Senator Cramer of Oklahoma calling on the White House to block Saudi Arabian oil shipments to the US.
“We cannot allow Saudi Arabia to flood the market, especially given our storage capacity dwindling. Right now, the highest number of Saudi oil tankers in years is on its way to our shores,” Cramer said.
But some analysts say such calls will not fix the underlying problem, nor are they likely to find real traction with the White House.
“While a discussion about a Saudi flotilla of oil is a popular rhetorical device, in practice it really doesn’t do much to reverse the oil dynamics,” Reed Blakemore, deputy director of the Atlantic Council Global Energy Center told Al Jazeera. “The President is aware of how much that would contradict the sentiment behind his negotiations with the Russians and Saudis. ”
Rhetoric and reality
The trajectory of oil prices ultimately hinges on how quickly demand will rebound and how long it takes to draw down the glut.
“At some point, the consequence for Saudi Arabia and Saudi-US relations will crystallise, especially when the US shale and oil industry is really disseminated,” said Yousef. “The big question is how much of this is temporary and how much of it is permanent.”
Like the course of the coronavirus pandemic, the outlook for oil prices and US producers is cloaked in uncertainty. But there are possible lifelines Trump could throw to struggling US oil firms that do not involve punitive measures against Riyadh.
“The administration is exploring a range of options to try to provide a bit of a safety net to oil and gas companies, including SPR [Strategic Petroleum Reserve] buys to alleviate the storage crisis,” said Blakemore.
The Trump administration is also considering offering bridge loans to struggling US energy firms, possibly in exchange for a financial stake, Bloomberg News reported on Wednesday, citing sources familiar with the matter.
Given the unprecedented and innovative measures that have been deployed to shore up businesses against the ravages of the coronavirus, some analysts say legislation like NOPEC that could complicate US foreign policy objectives, is unlikely to come out of hibernation.
“While the US has a limited hand to save US Shale, it recognises that a bill like NOPEC will likely do more harm than good,” said Blakemore. “The president has remained committed to having a productive and pragmatic relationship with Saudi Arabia, which is an important element of this situation.”
But with an election less than seven months away and an economy that is already shrinking dramatically, that commitment could be sorely tested.
“My intuitive feeling is the president is hoping this will wash away soon but I don’t think it’s going to,” said Yousef. “The impact even with recovery and some of the demand coming back will not come on time for him. He will do what he does best: start pointing his finger and blaming others for whatever damage has been done.”
Continue Reading…

Continue Reading

'price

Lebanon: A lost eye, the ‘price paid for demanding your rights’

Beirut, Lebanon – When he woke up on Saturday night after surgery, Mahdi al-Burji stared straight ahead and found that the hospital wall was blurry. His vision felt “uncoordinated”, he said. Earlier that day, the teenager had lost an eye after being struck by a rubber bullet during clashes between anti-government protesters and security forces in…

Lebanon: A lost eye, the ‘price paid for demanding your rights’

Beirut, Lebanon – When he woke up on Saturday night after surgery, Mahdi al-Burji stared straight ahead and found that the hospital wall was blurry. His vision felt “uncoordinated”, he said.
Earlier that day, the teenager had lost an eye after being struck by a rubber bullet during clashes between anti-government protesters and security forces in Beirut last weekend.
More:

Beirut turns into a battleground as clashes escalate

Scores wounded as Lebanon’s anti-gov’t protests turn violent

How can Lebanon overcome its economic crisis?

Two days later, although his left eye remained covered in gauze and a plastic patch, he said he could not wait to return to the streets.
“My eye is not my life, I will still fight,” the 18-year-old told Al Jazeera from his hospital bed.
Burji was one of hundreds of people who were wounded as anti-government rallies turned violent in the Lebanese capital on Saturday and Sunday, the final days of what had been dubbed by protesters as a “week of rage”.
Demonstrators are demanding the formation of a new cabinet led by independent experts to steer the country through its spiralling economic crisis. The country has been led by a caretaker administration with limited powers since Saad Hariri resigned on October 29.

Burji said that on Saturday, he joined a gathering of protesters a few hundred metres away from Parliament, as the demonstrators prepared to march to the front doors of the heavily guarded institution.
“I thought I was more than 100 metres away from security forces … I was on the phone and had my back to them. The minute I turned around, I saw one of them pointing a gun to my face,” Burji said. “The next thing I know, everything turned dark.”
Demand for change
Protesters first took to the streets in mid-October after the government announced plans to increase taxes, but the demonstrations quickly escalated into a nationwide, youth-led revolt against corruption among the ruling elite and the country’s confessional political system, where power is apportioned among ethnic and sectarian groups. Protesters have also demanded better public services, including infrastructure and education, as well as relief from a spiralling economic crisis.
Burji said he dropped out of high school last year when he was unable to find a job that did not clash with his class hours. He had started a new job as a security guard in Beirut the week before he was hit in the eye.
His mother, Lamis Shreim, is concerned about upcoming expenses needed to pay for treatment of Burji’s fractured cheekbone.
“There’s a huge dent under his eye, this is the price he paid for demanding his rights,” Shreim told Al Jazeera, fighting back tears of anger.
The mother of two said she was unable to work while she attends to her wounded son and her seven-year-old daughter.
School an ‘expensive’ dream
Medics said more than 460 people were wounded over two days of violent clashes between security forces and protesters. In addition to rubber bullets, security forces fired tear gas and water cannon against protesters, some of whom attacked security forces with tree branches and metal bars and fired flares and fireworks, as well as throwing stones.
Abdulrahman Jaber had travelled from the Bekaa Valley in eastern Lebanon to Beirut in order to take part in the protests on Saturday. He did not expect that, like Burji, he would also be badly wounded and end up losing an eye.
He said he arrived in downtown Beirut at around 3pm, after a two-hour bus ride, and was keeping his distance from the front line of the protests.
“Scuffles broke out hours after we had gathered in the street leading up to Parliament,” Jaber told Al Jazeera, speaking intermittently while laying on a hospital bed.

“After they started spraying people with water cannon, I tried to reach the far corner where my friends were,” the 17-year-old said.
“I looked at one side to see how far I was from a bunch of security forces pushing back protesters, they must have been 25 metres away,” he said.
“The next thing I know I was hit in the eye.”
Jaber thought the tear gas had tainted his eyesight after seeing clouds of smoke engulf the area where he was standing.
It was after reaching for his eye in the middle of the chaos that he realised the severity of the injury.
“I felt blood run down my face, but I didn’t feel any pain … I was in shock,” he recalled.
Until September last year, Jaber regularly attended school while also working as a waiter at a restaurant in the evenings. 
He told Al Jazeera that he would like to dedicate his time to school work, but said that was an “expensive” dream.
“Without work, I simply cannot go to school,” he said.

Abdelrahman Jaber said he did not feel pain when he struck by a rubber bullet on Saturday [Farah Najjar/Al Jazeera] 

‘Dangerous rioters’
Lebanese police on Tuesday defended the use of rubber bullets during the clashes, saying they were required to counter “dangerous rioters”.
“Rubber bullets in our possession are used in a number of developed countries, including France,” a statement by the Internal Security Forces said.
“Orders are given to the [security forces] to fire rubber bullets exclusively at the legs, at a distance of about 10 metres”, the statement said.
A UN statement said that “according to reliable sources, at least four young men were shot at close range with rubber bullets, leading to severe and irreversible damage to their eyes.”
Human Rights Watch has called for an end to the “culture of impunity” and demanded an investigation into the level of violence used by police in the last few days.
Despite the violence, protesters like Burji and Jaber are adamant they would continue to protest until an independent government is formed.
Prime Minister-designate Hassan Diab was expected to announce the formation of a government last week but failed to reach a consensus with political factions on the makeup of the new cabinet, with protesters demanding it consists of independent experts and excludes traditional political parties who have governed Lebanon for three decades.
Continue Reading…

Continue Reading

Trending