The effect of cheap oil on American policy

The Duke of Wellington wrote: »

here's the catch:

The US doesn't rely on oil production to generate income. While it provides a huge number of jobs in places like Texas, low oil prices aren't catastrophic to them. Iran and Russia need north of $100 a barrel, Venezuela is probably ....

..The Saudis and Iranians are also spending huge amounts of money on funding costly wars in the Middle East - Saudi Arabia is funding extremists in Syria and Libya, and bombing Yemen.

So while the Arabs/Iranians have a headline lower "break-even" rate, low oil prices will bite into their budgets - the Saudis have had to take their first loan in decades only a few months ago to shore up their current budget, even after slashing welfare and their capital budget.

Shale companies don't need to endure long-term deflated prices, they'll produce the bare minimum or nothing at all, and once prices begin to rise, they'll enter the market again and drive the price back down.

First off, have a look at the date of the first post. It was three years ago. And Mr Pritchard's article, only a couple of months old, is basically a resumé of how things have changed in the interim.

The point isn't (and wasn't) that low oil prices are bad for America per se. The point three years ago was that low international oil prices might not be good for frackers and shale oil extracters (who are mainly American) because those methods of fossil fuel extraction were inherently more expensive than others; and that one of the reasons for low oil prices over the last few years was the flooding of cheap oil on to world markets by OPEC countries. That this in turn was a bid by OPEC to discourage frackers from taking the hit on reduced profits, or even losses, emanating from their more costly extraction methods and therefore to put them out of business. Or at least, the fracking business.

Pritchard's article in August this year accepts that such was indeed the strategy of OPEC and goes on to suggest that this strategy has failed as new technology developments have reduced the cost of fracking and low oil prices have not discouraged American producers from forging ahead.

The world has changed.

Now we are hearing a new phrase emanating from the American Right: Energy Dominance. No longer is it enough for America to be self sufficient in energy (which it wasn't for a long time but is becoming so now); it now wants to use energy (oil, gas etc) as an international lever on the world.

Developments since then have seen a significant change in the Great Game. Britain, America's chief sycophant and incidentally an important medium-level oil producer itself, is leaving the EU. A determinedly isolationist America Firster is in the White House. The Middle East is in greater turmoil than usual. The European Union, or its British-free rump, is attempting to assert itself as an entity independent of the constraints of a close relationship with America.

The implications of all this could be very interesting. Will NATO survive, seeing as neither the Europeans (or at least the powerful European countries) nor the Americans seem to want it any more? Will the emergence of Britain as an entity free of the EU inevitably see it cosying up even more closely to the US and (whisper it) Trump's new best friends in Russia? Will the fact that one of the few things each of these countries has in common is an indigenous oil-production industry have implications for their relations with Europe? What is the Free World any more anyway?

Energy Dominance. Learn to fear that term.

server down wrote: »

I could take some of that last rant seriously - then I got to the new best friends in Russia bit.

You don't think there is any commonality of interest between the world's joint largest oil producer and the Trump administration packed with energy-lobby diehards? Or that there was ANY collusion between Russian interests and the Trump presidential campaign?

There is a lot of controversy in America about whether such "meddling" from Russia constituted illegality, either by the Russians or by those Americans who were more than happy to be "meddled" with. But nobody now denies that such contacts took place and as such you have to ask yourself, dispassionately and without delving into the depths of fanciful conspiracy theory, why this happened.

Cui bono?

server down wrote: »

Which word was mumbo jumbo- democrats or deep state?

Given that both came without any context or clarification and were clearly meant as "triggers": both.

server down wrote: »

Once again the first paragraph makes sense, the US will become an oil producer of note. From that we move onto an old war time alliance ( the WWII I suppose) because of no reason whatsoever. If America becomes an oil producer then it harms, not helps, the Russians. The UK may become an even greater ally ( read foot stool) of the US because of Brexit, but nothing to do with oil.

One of the biggest threats to the oil business at the moment is the determination (in varying degrees) of people to move away from dependency on it. In the long run, we may well live in a world that will be, if not "oil free" then far less oil critical. But there's a long way to go before that.

In the meantime, those who have oil are in a strong position to use it as a lever over those who don't. All it takes is a little collaboration and cartelling. OPEC has known that for years. And now the US is coming to the table with a strong hand of cards. And its relations with Britain and Russia are changing: Britain because of Brexit and Russia for a number of factors, not least of which is a US or at least a Trumpian desire to de-emphasise its ties to NATO.

The world has changed, and oil is a factor. As it has been for much of the past 150 years.


PS Foot stool is right