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Union USA and Saudi Arabia: a possible threat to Russia
Material posted: Publication date: 30-03-2014

President Barack Obama on March, 28, paid an official visit to Saudi Arabia, where he held a meeting with king Abdullah. There are suggestions that during the meeting they discussed such a sensitive issue, as the price of oil on the world market.

Many experts draw attention to the fact that oil prices can be used as a lever of pressure on Russian leader Vladimir Putin in the current conditions of international crisis around Ukraine.

Saudi oil as a means of influence in Asia

Bloomberg notes that the current price near $107 a barrel of oil is comfortable for Saudi Arabia. In the conditions of boom of shale oil in the US and start production in Europe of middle East oil to U.S. allies need to refocus on Asian markets. Apparently, in terms of prospective loss of a huge American and European markets, to maintain the profitability of its oil production Saudi Arabia will be difficult.

Oil production in the U.S. is expected to reach 9.6 million barrels per day in 2016, more than was mined in Saudi Arabia 2013, according to Bloomberg.

Currently, Saudi Arabia remains the second largest supplier of oil to the U.S. behind Canada - in part because the state oil company Saudi Aramco has a network of oil refineries (refinery), which guarantees its presence in the U.S. market. However, the supply of Saudi oil in the US are falling, according to the office for the U.S. energy information.

Meanwhile China, which has taken the place of the US as the world's largest impoter oil in September 2013 becomes the most important customer for middle Eastern oil producers. China imported at 53.9 million tons of Saudi crude oil in 2013, ie about 1 million barrels a day, which is 28% more than in 2009. This is evidenced by data from Chinese customs.

"Ten years ago, they (Saudi Arabia) were very concerned about their market share in Europe and the USA. It was a high priority foreign policy objective" for Saudi Arabia, says Valerie Marcel, a scientific staff member at research Institute Chatham House in London. - "Now this is not so important."

However, Saudi Arabia maintains its key role in the formation of world oil prices, as it can get dopolnitelno 3 million barrels per day, or slightly more than 3% of global demand, according to Bloomberg.

"Saudi Arabia will always play a key role," says Mike Wittner, head of oil market research in new York branch of Societe Generale. "They are the only country with the technical capability and the ability to increase or decrease oil production if necessary."

Given that promising in the light of sanctions from Europe and the USA, as well as reducing Europe's dependence on Russian energy, Russian oil exports will inevitably shift to China, Moscow will be faced with a formidable competitor in the face of Saudi Arabia.

Can the US and Saudi Arabia to crash the oil price?

Universal principle, the so-called "First law of petropolitics" formulated by Tom Friedman of the New York Times, reads as follows: when oil prices are high, the leaders of oil-producing countries can become demanding and aggressive, when prices are low, these leaders are more pliable.

A little over a week ago the Obama administration authorized the sale of 5 million barrels of oil from Strategic petroleum reserve (SPR) in the United States. Although Washington stated that this sale is not associated with the Russian annexation of Crimea, observers regarded such a step as a warning to the Kremlin that the U.S. can attack Russia's economy.

Many analysts are sceptical that the U.S. alone can affect oil prices in the world. This draws attention to the fact that Russia, in turn, may reduce its oil production from its current 7 million barrels a day, and wait for higher oil prices won't hurt the United States.

However, the Russian economy and budget are totally dependent on oil. Russia may cut oil production and wait, but she will struggle, while for the U.S. such a move may not be affected, said Steve Levine in Quartz.

What if king Abdullah decides to cooperate with the United States in exchange for, say, U.S. military aid to the Syrian rebels? For example, if Saudi Arabia will increase oil production from the current 9.7 barrels per day to 10 million barrels a day, and at the same time the U.S. will begin selling oil from the SPR, it can have an impact on oil prices. Will this be enough to deal a severe blow to the Russian economy?

The U.S. can provide a sustainable supply of 500-750 thousand barrels of oil per day from the SPR, says Bloomberg. If the United States will coordinate with Saudi Arabia to increase the supply of Saudi oil to the world market - the world prices for oil will fall immediately. Russia receives 70% of export earnings come from oil and gas, so even a moderate drop in oil prices will be a heavy blow. Philip Verleger, a former employee of the administrations of presidents Gerald Ford and Jimmy Carter, believes that the sale only 500 thousand barrels per day from U.S. SPR will lead to falling oil prices by $12 per barrel, which will cost Russia losing $40 billion, or 2% of GDP. If these actions will be bigger and will be supplemented by the corresponding actions on the part of Saudi Arabia, the consequences will be much more serious.

Why Washington and Riyadh may agree

Saudi leaders are currently dissatisfied with the decision of Washington to abandon most of the military involvement of the United States in actions against the Assad regime in Syria.

Another controversial point is Egypt, where Obama criticized the "excessively rigid" measures taken by the military government against "fellow Muslims", followers of ousted President Mohamed Morsi. Saudi Arabia provides assistance to the military government of Egypt because of its nezainteresovanosti in the strengthening of Islamic radicalism preached "Brothers-Muslims", on its borders.

Thus, Washington is enough to make concessions to Saudi Arabia in these matters, in particular regarding supplies of arms to the Syrian opposition and relation to the repression of the Egyptian government against the "Muslim brotherhood" and Saudi leaders can cooperate in the oil issue.

A win-win situation for Washington

"We can increase exports and the U.S. wins on all levels," says Carl Larry of research center of Oil Outlooks & Opinions in Houston, Texas. - "Oil refinery will retrieve a large margin, and at the same time we squeeze Russian oil".

According to the Department of energy of the U.S. government, in the United States is produced at 9.19 million barrels per day, which is the highest since 1988. total U.S. oil production. The volume of imports of liquid energy will fall by 25% in 2015. and reach lower than the level of 1971., according to the energy Department.

Harry Hufbauer from the Peterson Institute for studies in global Economics in Washington, notes that Saudi Arabia will cooperate with the US, because Riyadh is not like the role that Moscow plays in Syria.

Meanwhile, Reuters notes that at the end of yesterday's meeting with Obama, the Saudi king received a vague hint that the US can agree on arming Syrian rebels portable air defense systems. If that happens, and American arms supplies to the Syrian opposition will begin in the near future, this could make Saudi Arabia more compliant to changing world oil prices.

Christian Rose



Source: http://top.rbc.ru/economics/30/03/2014/914380.shtml


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