Don’t you love it when you are right? I do, and apparently I was right about the world being awash with oil.
In a recent column, I wrote that oil prices are being artificially kept high. Well, it is all thanks to Saudi Arabia and their “Oil War Plan.”
Yes, a recent article published by RT (formerly Russia Today), reports that an unnamed Saudi business man who is close to royal circles had lunch with an unnamed fund manager at which the truth came out: Saudi Arabia is flooding the market with oil to bring the price down to $60 per barrel.
Why? In order to cripple the oil producing economies of Iraq and Iran. According to the report, the biggest threat to the Sunni Kingdom of Saudi Arabia is Shia Iran and Iraq.
I have no desire to disparage the unnamed business man or the fund manager, and do not doubt the said lunch took place and the conversation was reported accurately. Unfortunately, though it makes great copy, the story is simply unbelievable.
If it were true, then the entire oil industry has been asleep at the wheel.
Firstly, Saudi Arabia, Iran and Iraq are all members of OPEC (Organization of Petroleum Exporting Countries). In fact they are, along with the UAE in the top 4 producers of OPEC. Consider OPEC’s stated mission: “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”
Are we seriously to believe that OPEC, with all its influence, market data and scrutiny, would not notice that its single biggest member by production, Saudi Arabia, is in fact working against the core principles of OPEC, and that no one in OPEC has noticed, or if they have, they are simply turning a blind eye? Highly unlikely one would think.
The world is awash with oil, but not simply because Saudi Arabia is flooding the market. Most of the excess Saudi oil that is hitting the market is going directly to the United States, and at prices below that of Asia. If Saudi Arabia really wanted to flood the market, their oil would go to Asia, not the U.S. The 20-million-barrel waves of oil that have been going to the U.S. appear to have disappeared into a black hole.
Global oil prices are on the decline not because Saudi is flooding the market, but rather because global demand for consumption (as opposed to reserves) is so weak at the moment. With Europe in meltdown, China in slowdown and Asia growth being limited, demand for oil has literally fallen off a cliff. So the notion that Saudi Arabia can increase oil production by a couple of million barrels a day and effect a 40% drop in the global price of oil is pure fantasy. Let’s not forget that the oil price is routinely manipulated - principally through the opaque and aptly named Brent complex - rather than through OPEC anyway.
Let’s for a moment, entertain the story that Saudi Arabia is in fact conducting an oil war in order to cripple Iraq and Iran. Let’s forget that Saudi could ill afford such a war themselves, given the fragile economic climate globally and the so-called Arab Spring regionally. Let’s assume Saudi Arabia is successful and decimates the economies in Iran and Iraq.
What happens then? What happens when the world begins to recover, and demand for oil increases? Will the result be that oil prices skyrocket and consuming nations are so reliant on the Saudis to supply their oil that Riyadh dictates global energy policy? Wouldn’t Western intelligence agencies – which are tasked with assessing their country’s energy security - realize that such a Saudi policy of Oil War would constitute a huge security risk for their countries and seek to put an end to it?
Then of course, I think it is an affront to the intelligence of Saudi Arabia to assume that they would even consider such a policy, or that in the Muslim world there is no religious tolerance between Sunni and Shia. My understanding is that this divide is an invention of the neocons, rather than a Muslim problem. The uprisings in the Arab world are about economic and social freedoms and imbalances, not about a religious divide.
There is a hidden or unwritten message in the story which holds the truth. And that is the urgent need for a 21st Century energy market, and a new approach to energy policy - an Energy Doctrine – giving rise to a market that is neutral, stable, secure, transparent, resilient, accessible, fair, sustainable and based upon cooperation rather than competition.
In summary, we need dollars priced in energy rather than energy priced in dollars: then and only then will we be able to take religion and politics out of energy.
The views expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
Current markets are anything but global or integrated. What if we had a paradigm shift in the way we think and transact when doing business with each other? Balanced global trade can only occur if we have transparent, accessible and efficient markets. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is founding Partner of SBI Markets DMCC, a Dubai-registered commodities trading and advisory company. Barden has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.
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