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Friday, 18 September 08:37 (GMT -05:00)



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Saudi Arabia Destroyed USSR: Can It Destroy Russia?


 

Some Western experts say they have found Russia’s heel of Achilles. The USA thinks the best way to press Putin is to manipulate oil prices since Russia is an export-oriented economy. In particular, it depends on oil and natural gas exports. Therefore, too weak prices may finish the Russian economy, US politicians believe.
 
The experts say that Saudi Arabia may help the USA and the West in general to implement this ambitious goal aimed at undermining the Russian economy, which depends on energy exports.

 

 

 

 
Thomas Friedman’s First Law of Petropolitics reads:
 
“The First Law of Petropolitics posits the following: The price of oil and the pace of freedom always move in opposite directions in oil-rich petrolist states. According to the First Law of Petropolitics, the higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded ... Conversely, according to the First Law of Petropolitics, the lower the price of oil, the more petrolist countries are forced to move toward a political system and a society that is more transparent, more sensitive to opposition voices, and more focused on building the legal and educational structures that will maximize their people’s ability, both men’s and women’s, to compete, start new companies, and attract investments from abroad. The lower the price of crude oil falls, the more petrolist leaders are sensitive to what outside forces think of them.”
 
Their favorite example is the disintegration of the USSR more than 2 decades ago.
They say that in 1985, the USA asked Saudia Arabia to raise its oil production. Saudi Arabia did it, thereby dropping oil prices from $32 down to $10 per barrel. As a result, the USSR failed to survive a sharp decline in its export revenues, which ultimately led to its disintegration.
 
Now it seems that Barrack Obama is determined to implement the same old scenario as a response to Russia’s aggressive external policy (including the recent annexation of the Crimea, which used to be a part of Ukraine a couple of months ago).
Obama keeps visiting Saudi Arabian sheikhs. It seems like the USA is really determined to get Saudi Arabia involved.
 
Indeed, Saudi Arabia plays one of the key roles in crude oil pricing. According to Bloomberg, Saudi Arabia may well increase its production capacity by 3 million barrels a day, which corresponds to 3% of the global oil production volume.
 
Another major thing about this Middle-Eastern state is that it is the only oil producer that has technical ability to boost and cut its oil production easily and relatively fast if necessary. This is an unquestionable fact. Still, the key question is whether the USA and Saudi Arabia can ally in order to depress Russia?
 
 
Saudi Arabia
 
Still, there seem to have recently been some major disagreements between the USA and Saudi Arabia. All in all, there are 3 of them.
 
First of all, Saudi Arabia doesn’t like the fact that the USA abandoned the idea of a full-fledged military operation in Syria, which Saudi Arabia hoped for. Secondly, the sheikhs do not like the nuclear agreement between the USA and Iran, which allowed the latter to compete for the status of a Middle-Eastern superpower. And finally, it is about Egypt. Obama criticized the repressions of the Egyptian military government against the so-called “Muslim Brothers” while the new government enjoys Saudi Arabia’s support. These are the 3 major reasons why the bilateral relations between Saudi Arabia and the USA deteriorated.
 
Are there any chances that these relations may improve in the near future? Apparently, they are. For example, the USA may promise arms supplies to the Syrian rebels (Obama hinted at that not so long ago). If this is really the case, Saudi Arabia may well help the USA to undermine Russia by dropping oil prices through excessive oil production.
 
These are just suppositions and rumors since there has been no official confirmation of any agreements so far. Still, there are reasons to think that Obama reached some agreements with his Eastern ally. Even though Obama made a visit to Saudi Arabia, it is amateurish to compare the current situation to the one that existed in the 1980s. The world has evolved since then.
 
First of all, the current global oil market is so huge that even one of its biggest players like Saudi Arabia cannot manipulate it alone. Without any doubt, Saudi Arabia is the world’s biggest oil exporter. Still, it is not the only major exporter of the “black gold” and the “blood of the global economy”. This leads us to believe that an instant drop in oil prices is unlikely.
It is sufficient to say that Saudi Arabia’s spare oil production capacity is equal to just 2,6 million barrels a day. On top of that, low oil prices may favor China, the world’s biggest consumer of crude oil, which is definitely the last item on the list of the USA’s desires.
 
At the same time, the situation in the global market of crude oil remains rather unstable and ambiguous. The latest macroeconomic stats coming from the USA keep supporting oil fuel prices. Last week’s employment stats and CPIs indicate positive tendencies. On top of that, Janet Yellen assumes that the US labor market still needs support in the form of easy monetary policies. This means that we may well see the Fed coming up with another from of financial support in the near future.
 
At the same time, Libya’s oil exports seem to be recovering. This fact favors lower oil prices. Meanwhile, oil is trading around 101 dollars per barrel, Masterforex-V Academy reports. 
 

 

 

 

Moreover, Saudi Arabia is not as dependent on the USA as it used to be a couple of decades ago. This means that Saudi Arabia values its own interest. Dropping oil prices amid global financial and economic instability equals undermining its national economy oriented to oil exports. In order to have a well-balanced budget, Saudi Arabia cannot drop oil prices below 90 dollars per barrel.
 
At the same time, Iran is getting ready to return to the global oil market and Saudi Arabia will have to cut some of its oil production quotas in favor of Iran.
 
Still, undermining the Russian economy by dropping oil prices is not as easy as it seems. The current Russian budget is calculated based on $100-101/b, while oil prices hold steady above $100/b. On top of that, a major drop in oil prices doesn't mean an inevitable economic collapse in Russia. For example, in 2008, oil prices collapsed from 140 down to 45 dollars per barrel. Still, Russia managed to survive this crisis.
 
And finally, Russia has a pretty decent safety cushion – its abundant gold and currency reserves coupled with relatively small debt and unemployment rate (10% and 5,5% respectively).
 
The bottom line is that everything that is done by the USA to undermine Russia's oil-export-dependent economy is done in vain.
 

 

 

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