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Did the U.S. and the Saudis Conspire to Push Down Oil Prices?
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“Saudi oil policy… has been subject to a great deal of wild and inaccurate conjecture in recent weeks. We do not seek to politicize oil… For us it’s a question of supply and demand, it’s purely business.”

– Ali al Naimi, Saudi Oil Minister

“There is no conspiracy, there is no targeting of anyone. This is a market and it goes up and down.”

– Suhail Bin Mohammed al-Mazroui, United Arab Emirates’ petroleum minister

“We all see the lowering of oil prices. There’s lots of talk about what’s causing it. Could it be an agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.”

Russian President Vladimir Putin

Are falling oil prices part of a US-Saudi plan to inflict economic damage on Russia, Iran and Venezuela?

Venezuelan President Nicolas Maduro seems to think so. In a recent interview that appeared in Reuters, Maduro said he thought the United States and Saudi Arabia wanted to drive down oil prices “to harm Russia.”

Bolivian President Evo Morales agrees with Maduro and told journalists at RT that: “The reduction in oil prices was provoked by the US as an attack on the economies of Venezuela and Russia. In the face of such economic and political attacks, the nations must be united.”

Iranian President Hassan Rouhani said the same thing,with a slightly different twist: “The main reason for (the oil price plunge) is a political conspiracy by certain countries against the interests of the region and the Islamic world … Iran and people of the region will not forget such … treachery against the interests of the Muslim world.”

US-Saudi “treachery”? Is that what’s really driving down oil prices?

Not according to Saudi Arabia’s Petroleum Minister Ali al-Naimi. Al-Naimi has repeatedly denied claims that the kingdom is involved in a conspiracy. He says the tumbling prices are the result of “A lack of cooperation by non-OPEC production nations, along with the spread of misinformation and speculator’s greed.” In other words, everyone else is to blame except the country that has historically kept prices high by controlling output. That’s a bit of a stretch, don’t you think? Especially since–according to the Financial Times — OPEC’s de facto leader has abandoned the cartel’s “traditional strategy” and announced that it won’t cut production even if prices drop to $20 per barrel.

Why? Why would the Saudis suddenly abandon a strategy that allowed them to rake in twice as much dough as they are today? Don’t they like money anymore?

And why would al-Naimi be so eager to crash prices, send Middle East stock markets into freefall, increase the kingdom’s budget deficits to a record-high 5 percent of GDP, and create widespread financial instability? Is grabbing “market share” really that important or is there something else going on here below the surface?

The Guardian’s Larry Elliot thinks the US and Saudi Arabia are engaged a conspiracy to push down oil prices. He points to a September meeting between John Kerry and Saudi King Abdullah where a deal was made to boost production in order to hurt Iran and Russia. Here’s a clip from the article titled “Stakes are high as US plays the oil card against Iran and Russia”:

“…with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil exports, the assumption is that they will become easier to deal with…

John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.

The Saudis did something similar in the mid-1980s. Then, the geopolitical motivation for a move that sent the oil price to below $10 a barrel was to destabilize Saddam Hussein’s regime. This time, according to Middle East specialists, the Saudis want to put pressure on Iran and to force Moscow to weaken its support for the Assad regime in Syria… (Stakes are high as US plays the oil card against Iran and Russia, Guardian)

That’s the gist of Elliot’s theory, but is he right?

Vladimir Putin isn’t so sure. Unlike Morales, Maduro and Rouhani, the Russian president has been reluctant to blame falling prices on US-Saudi collusion. In an article in Itar-Tass, Putin opined:

“There’s a lot of talk around” in what concerns the causes for the slide of oil prices, he said at a major annual news conference. “Some people say there is conspiracy between Saudi Arabia and the US in order to punish Iran or to depress the Russian economy or to exert impact on Venezuela.”

“It might be really so or might be different, or there might be the struggle of traditional producers of crude oil and shale oil,” Putin said. “Given the current situation on the market the production of shale oil and gas has practically reached the level of zero operating costs.” (Putin says oil market price conspiracy between Saudi Arabia and US not ruled out, Itar-Tass)

As always, Putin takes the most moderate position, that is, that Washington and the Saudis may be in cahoots, but that droopy prices might simply be a sign of over-supply and weakening demand. In other words, there could be a plot, but then again, maybe not. Putin is a man who avoids passing judgment without sufficient evidence.

The same can’t be said of the Washington Post. In a recent article, WP journalist Chris Mooney dismisses anyone who thinks oil prices are the result of US-Saudi collaboration as “kooky conspiracy theorists”. According to Mooney:

“The reasons for the sudden (price) swing are not particularly glamorous: They involve factors like supply and demand, oil companies having invested heavily in exploration several years ago to produce a glut of oil that has now hit the market — and then, perhaps, the “lack of cohesion” among the diverse members of OPEC.” (Why there are so many kooky conspiracy theories about oil, Washington Post)

Oddly enough, Mooney disproves his own theory a few paragraphs later in the same piece when he says:

“Oil producers really do coordinate. And then, there’s OPEC, which is widely referred to in the press as a “cartel,” and which states up front that its mission is to “coordinate and unify the petroleum policies” of its 12 member countries…. Again, there’s that veneer of plausibility to the idea of some grand oil related strategy.” (WP)

Let me get this straight: One the one hand Mooney agrees that OPEC is a cartel that “coordinates and unify the petroleum policies”, then on the other, he says that market fundamentals are at work. Can you see the disconnect? Cartels obstruct normal supply-demand dynamics by fixing prices, which Mooney seems to breezily ignore.

Also, he scoffs at the idea of “some grand oil related strategy” as if these cartel nations were philanthropic organizations operating in the service of humanity. Right. Someone needs to clue Mooney in on the fact that OPEC is not the Peace Corps. They are monopolizing amalgam of cutthroat extortionists whose only interest is maximizing profits while increasing their own political power. Surely, we can all agree on that fact.

What’s really wrong with Mooney’s article, is that he misses the point entirely. The debate is NOT between so-called “conspiracy theorists” and those who think market forces alone explain the falling prices. It’s between the people who think that the Saudis decision to flood the market is driven by politics rather than a desire to grab “market share.” That’s where people disagree. No denies that there’s manipulation; they merely disagree about the motive. This glaring fact seems to escape Mooney who is on a mission to discredit conspiracy theorists at all cost. Here’s more:

(There’s) “a long tradition of conspiracy theorists who have surmised that the world’s great oil powers — whether countries or mega-corporations — are secretly pulling strings to shape world events.”…

“A lot of conspiracy theories take as their premise that there’s a small group of people who are plotting to control something, to control the government, the banking system, or the main energy source, and they are doing this to the disadvantage of everybody else,” says University of California-Davis historian Kathy Olmsted, author of “Real Enemies: Conspiracy Theories and American Democracy, World War I to 9/11″. (Washington Post)

Got that? Now find me one person who doesn’t think the world is run by a small group of rich, powerful people who operate in their own best interests? Here’s more from the same article:

(Oil) “It’s the perfect lever for shifting world events. If you were a mad secret society with world-dominating aspirations and lots of power, how would you tweak the world to create cascading outcomes that could topple governments and enrich some at the expense of others? It’s hard to see a better lever than the price of oil, given its integral role in the world economy.” (WP)

“A mad secret society”? Has Mooney noticed that — in the last decade and a half — the US has only invaded nations that have huge natural resources (mainly oil and natural gas) or the geography for critical pipeline routes? There’s nothing particularly secret about it, is there?

The United States is not a “mad secret society with world-dominating aspirations”. It’s a empire with blatantly obvious “world-dominating aspirations” run by political puppets who do the work of wealthy elites and corporations. Any sentient being who’s bright enough to browse the daily headlines can figure that one out.

Mooney’s grand finale:

“So in sum, with a surprising and dramatic event like this year’s oil price decline, it would be shocking if it did not generate conspiracy theories. Humans believe them all too easily. And they’re a lot more colorful than a more technical (and accurate) story about supply and demand.” (WP)

Ah, yes. Now I see. Those darn “humans”. They’re so weak-minded they’ll believe anything you tell them, which is why they need someone as smart as Mooney tell them how the world really works.

Have you ever read such nonsense in your life? On top of that, he gets the whole story wrong. This isn’t about market fundamentals. It’s about manipulation. Are the Saudis manipulating supply to grab market share or for political reasons? THAT’S THE QUESTION. The fact that they ARE manipulating supply is not challenged by anyone including the uber-conservative Financial Times that deliberately pointed out that the Saudis had abandoned their traditional role of cutting supply to support prices. That’s what a “swing state” does; it manipulates supply keep prices higher than they would be if market forces were allowed to operate unimpeded.

So what is the motive driving the policy; that’s what we want to know?

Certainly there’s a strong case to be made for market share. No one denies that. If the Saudis keep prices at rock bottom for a prolonged period of time, then a high percentage of the producers (that can’t survive at prices below $70 per barrel) will default leaving OPEC with greater market share and more control over pricing.

So market share is certainly a factor. But is it the only factor?

Is it so far fetched to think that the United States–which in the last year has imposed harsh economic sanctions on Russia, made every effort to sabotage the South Stream pipeline, and toppled the government in Kiev so it could control the flow of Russian gas to countries in the EU–would coerce the Saudis into flooding the market with oil in order to decimate the Russian economy, savage the ruble, and create favorable conditions for regime change in Moscow? Is that so hard to believe?

Apparently New York Times columnist Thomas Freidman doesn’t think so. Here’s how he summed it up in a piece last month: “Is it just my imagination or is there a global oil war underway pitting the United States and Saudi Arabia on one side against Russia and Iran on the other?”

It sounds like Freidman has joined the conspiracy throng, doesn’t it? And he’s not alone either. This is from Alex Lantier at the World Socialist Web Site:

“While there are a host of global economic factors underlying the fall in oil prices, it is unquestionable that a major role in the commodity’s staggering plunge is Washington’s collaboration with OPEC and the Saudi monarchs in Riyadh to boost production and increase the glut on world oil markets.

As Obama traveled to Saudi Arabia after the outbreak of the Ukraine crisis last March, the Guardian wrote, “Angered by the Soviet invasion of Afghanistan in 1979, the Saudis turned on the oil taps, driving down the global price of crude until it reached $20 a barrel (in today’s prices) in the mid-1980s… [Today] the Saudis might be up for such a move—which would also boost global growth—in order to punish Putin over his support for the Assad regime in Syria. Has Washington floated this idea with Riyadh? It would be a surprise if it hasn’t.” (Alex Lantier, Imperialism and the ruble crisis, World Socialist Web Site)

And here’s an intriguing clip from an article at Reuters that suggests the Obama administration is behind the present Saudi policy:

“U.S. Secretary of State John Kerry sidestepped the issue (of a US-Saudi plot) after a trip to Saudi Arabia in September. Asked if past discussions with Riyadh had touched on Russia’s need for oil above $100 to balance its budget, he smiled and said: “They (Saudis) are very, very well aware of their ability to have an impact on global oil prices.” (Saudi oil policy uncertainty unleashes the conspiracy theorists, Reuters)

Wink, wink.

Of course, they’re in bed together. Saudi Arabia is a US client. It’s not autonomous or sovereign in any meaningful way. It’s a US protectorate, a satellite, a colony. They do what they’re told. Period. True, the relationship is complex, but let’s not be ridiculous. The Saudis are not calling the shots. The idea is absurd. Do you really think that Washington would let Riyadh fiddle prices in a way that destroyed critical US domestic energy industries, ravaged the junk bond market, and generated widespread financial instability without uttering a peep of protest on the matter?

Dream on! If the US was unhappy with the Saudis, we’d all know about it in short-order because it would be raining Daisy Cutters from the Persian Gulf to the Red Sea, which is the way that Washington normally expresses its displeasure on such matters. The fact that Obama has not even alluded to the shocking plunge in prices just proves that the policy coincides with Washington’s broader geopolitical strategy.

And let’s not forget that the Saudis have used oil as a political weapon before, many times before. Indeed, wreaking havoc is nothing new for our good buddies the Saudis. Check this out from Oil Price website:

“In 1973, Egyptian President Anwar Sadat convinced Saudi King Faisal to cut production and raise prices, then to go as far as embargoing oil exports, all with the goal of punishing the United States for supporting Israel against the Arab states. It worked. The “oil price shock” quadrupled prices.

It happened again in 1986, when Saudi Arabia-led OPEC allowed prices to drop precipitously, and then in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which was seen as a threat to their oil supremacy. In 1998, they succeeded. When the oil price was halved from $25 to $12, Russia defaulted on its debt.

The Saudis and other OPEC members have, of course, used the oil price for the obverse effect, that is, suppressing production to keep prices artificially high and member states swimming in “petrodollars”. In 2008, oil peaked at $147 a barrel.” (Did The Saudis And The US Collude In Dropping Oil Prices?, Oil Price)

1973, 1986, 1990, 1998 and 2008.

So, according to the author, the Saudis have manipulated oil prices at least five times in the past to achieve their foreign policy objectives. But, if that’s the case, then why does the media ridicule people who think the Saudis might be engaged in a similar strategy today?

Could it be that the media is trying to shape public opinion on the issue and, by doing so, actually contribute to the plunge in oil prices?

Bingo. Alert readers have probably noticed that the oil story has been splashed across the headlines for weeks even though the basic facts have not changed in the least. It’s all a rehash of the same tedious story reprinted over and over again. But, why? Why does the public need to have the same “Saudis refuse to cut production” story driven into their consciousness day after day like they’re part of some great collective brainwashing experiment? Could it be that every time the message is repeated, oil sells off, and prices go down? Is that it?

Precisely. For example, last week a refinery was attacked in Libya which pushed oil prices up almost immediately. Just hours later, however, another “Saudis refuse to cut production” story conveniently popped up in all the major US media which pushed prices in the direction the USG wants them to go, er, I mean, back down again.

This is how the media helps to reinforce government policy, by crafting a message that helps to push down prices and, thus, hurt “evil” Putin. (This is called “jawboning”) Keep in mind, that OPEC doesn’t meet again until June, 2015, so there’s nothing new to report on production levels. But that doesn’t mean we’re not going to get regular updates on the “Saudis refuse to cut production” story. Oh, no. The media is going to keep beating that drum until Putin cries “Uncle” and submits to US directives. Either that, or the bond market is going to blow up and take the whole damn global financial system along with it. One way or another, something’s got to give.

Bottom line: Falling oil prices and the plunging ruble are not some kind of free market accident brought on by oversupply and weak demand. That’s baloney. They’re part of a broader geopolitical strategy to strangle the Russian economy, topple Putin, and establish US hegemony across the Asian landmass. It’s all part of Washington’s plan to maintain its top-spot as the world’s only superpower even though its economy is in irreversible decline.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at [email protected].

(Republished from Counterpunch by permission of author or representative)
 
• Category: Economics • Tags: Oil, Saudi Arabia 
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  1. KA says:

    ““A lot of conspiracy theories take as their premise that there’s a small group of people who are plotting to control something, to control the government——–and they are doing this to the disadvantage of everybody else,” . (Washington Post)”
    So was the ship sunk off Cuba to bring advantage to Cuban or was it discussed with the US voters?
    Was the Gulf of Tonkin affair discussed with the soldiers and voters ? Was it to generate advantages for American and Vietnamese?
    Was the torture enhanced to find the connection between Al Quida and 911 and future plans of attacks? Was the Niger Document procured after getting the break-in vetted by Niger,Rome,Iraq,and American citizen? Was the Bush plan to
    paint US planes over Iraq sky with UN logo discussed with UN? Who were those people in one voice blaming Saddam for anthrax? They sleep together and don’t tell the viewers or the voters. Did they control that piece of news to propel events domestically and abroad without any advantage to regular citizen ? I think they did. Did they tell citizen that available intelligence did not support any connection between Saddam and 911? No they did not. Did they admit of making up facts? No they did not .
    Did NED chief say ” we do lot of those things CIA did before” ? I know he did .
    Who were those snipers in Maidan of Kiev?
    Did US convince Americans that America was under threat from Soviet invasion of Afghanistan? Yes they did. Did they inform the behind the scene interference and military activities before the arrival of Soviet? No they didn’t.
    There are more .
    So who is this moron? I guess he or she can get the same platform -that provided originally the same venue for those previous lies – to claim innocence .

  2. KA says:

    US also leverages by keeping the focus on Saudi as the culprit. If things get rotten( terrorism against west) US can blame Saudi for the economic collapse ( high risk junk bond, oil based derivatives, banks failing over these loans – and losses of jobs in Dakota and Wyoming and Texas) . It also can use this perception to ratchet up pressure on Saudis.
    Remember the outcry and the zeal to go for all put war against Saudi before 20 o6 ?

  3. […] world’s only superpower even though its economy is in irreversible decline.     More here, http://www.unz.com/mwhitney/irreversible-decline/ ===================== Ruble Takedown Exposes Cracks in Putin’s Defense Barbarossa 2 BY MIKE […]

  4. War for Blair Mountain [AKA "Bill Blizzard and his Men"] says:

    I am a Native Born White American Patriot….and I stand with the Conservative Orthodox Christian Russian People against that creature from Hell itself known as the Democratic Party(Filth!!!!!).

  5. Anonymous • Disclaimer says:

    “Bottom line is the Saudis set price, and have engineered the latest decline. There was no shift in net global supply/demand as evidenced by Saudi output remaining relatively stable throughout.””

    http://moslereconomics.com/2014/12/04/comments-on-crude-pricing-the-economy-and-the-banking-system/

    “The Saudis are the ‘supplier of last resort’/swing producer. Every day the world buys all the crude the other producers sell to the highest bidder and then go to the Saudis for the last 9-10 million barrels that are getting consumed. They either pay the Saudis price or shut the lights off, rendering the Saudis price setter/swing producer.

    Specifically, the Saudis don’t sell at spot price in the market place, but instead simply post prices for their customers/refiners and let them buy all they want at those prices.

    And most recently the prices they have posted have been fixed spreads from various benchmarks, like Brent.

    Saudi spread pricing works like this:
    Assume, for purposes of illustration, Saudi crude would sell at a discount of $1 vs Brent (due to higher refining costs etc.) if they let ‘the market’ decide the spread by selling a specific quantity at ‘market prices’/to the highest bidder. Instead, however, they announce they will sell at a $2 discount to Brent and let the refiners buy all they want.

    So what happens?
    The answer first- this sets a downward price spiral in motion. Refiners see the lower price available from the Saudis and lower the price they are willing to pay everyone else. And everyone else is a ‘price taker’ selling to the highest bidder, which is now $1 lower than ‘indifference levels’. When the other suppliers sell $1 lower than before the Saudi price cut/larger discount of $1, the Brent price drops by $1. Saudi crude is then available for $1 less than before, as the $2 discount remains in place. Etc. etc. with no end until either:
    1) The Saudis change the discount/raise their price
    2) Physical demand goes up beyond the Saudis capacity to increase production

    And setting the spread north of ‘neutral’ causes prices to rise, etc.

    Bottom line is the Saudis set price, and have engineered the latest decline. There was no shift in net global supply/demand as evidenced by Saudi output remaining relatively stable throughout.”

    • Replies: @pyrrhus
  6. how dare you question the washington consensus.

  7. rod1963 says:

    If Mr. Whitney’s assertion is true, Putin could easily call the West’s bluff on this. The thing is the Russian people are accustomed to hardship and can handle it, whereas our very overheated and sick bubble economy OTOH cannot nor can it’s people. Nor can the EU which is only being kept alive by the Germany and even they are suffering from cutting off trade with Russia.

    Add in the fact that commodity prices are collapsing is a bad omen for the West. This is demand destruction all pointing to a contracting global economy. It can be seen here in the U.S. with consumers not buying much, sky high unemployment rates, With 30% of 30-year old Americans and almost 50% of 25-year olds living with parents – this in itself is a national disaster. Or the fact 47% of the people are on government assistance. Then there is the lack of decent paying full time jobs, etc. These and more show that we have nothing more than a Potemkin economy.

    • Replies: @another fred
  8. Anonymous • Disclaimer says:

    interesting there is no mention of how US shale gas production will be affected by these prices.

  9. @rod1963

    “The thing is the Russian people are accustomed to hardship and can handle it, whereas our very overheated and sick bubble economy OTOH cannot nor can it’s people.”

    There are two main reasons we cannot survive hard times:

    1. The debt levels throughout our economy, both business and personal, require that the wheels of commerce continue to turn. Once the debt bubble starts to deflate (and it eventually must) bankruptcies will trigger more bankruptcies and there will be few people left solvent – the economy will grind to a halt.

    2. We no longer have a broad, deep, agricultural base to provide a ground level of activity on which to found a recovery of a free market.

    The result of this is that when a bust comes the government must take control and force-feed monetary fuel to the economy. We can see the shape of this in what the FED is doing now.

    The economy may be allowed to stutter and stall in order to allow people to “gaze into the abyss” and generate the calls from the people for the government to “do something”, but the laws are already on the books and the transition from a free market to an ordered economy will be fairly smooth.

    There is no escaping this and it is really not the fault of any one man, although there is a superfluous abundance of villains strewn through the pages of history. It is the result of human nature and stupidity.

    Economic situations like the one brewing usually generate wars, and the coming one should be a doozy, but if we can avoid a total nuclear launch it should kill enough people for the survivors to happily rebuild on the wreckage. Life goes on.

  10. Anonymous • Disclaimer says:

    Strange ideas all around. If Russia’s economy is in a downward spiral, war would be good for Russia. It would boost the weapons industry and bring jobs to millions, even if the surplus growth needs immigrants from outside of Russia.

    Secondly, oil price hiking and lowering is Saudi Arabia’s way of confronting a large and formidable enemy that can ruin their whole country in days. Russia is a producer of both oil and natural gas, and it has far more barrels of oil than Saudi Arabia. In the long run, Saudi’s oil is projected to deplete within the mid-century, and they will have to play nice with stronger countries. Russia might still be exporting oil and natural gas, which the Saudis by then would sorely need to perpetuate their contemporary consumer culture.

    Third, many empires in the past went to war because of faltering economic conditions. Looting, tributes and merchants (all done today in a more sophisticated way under contractors and investors) brought needed wealth to faltering empires. Does Obama or the Dems or the Pentagon not think that Russia could benefit from occupying Alaska, Oregon and Washington; which day by day is seeming to be a more and more possible situation? Even California seems to be occupied silently by outsiders.

  11. KA [AKA "bulu"] says:

    How is the derivative market respond to this low oil price? Is the bank in US on the hook? Will it see a collapse and then scrape the savings accounts of the flag waving Sharia thrashing Pam Geller supporting “Joe the Plumber” crowd who are waiting for the bus that never will ply again down that route?

  12. This essay is total hogwash. The Saudis and their western advisers simply looked at the extent to which natural gas has replaced petroleum as the fuel of choice for electricity generation and other energy needs in the United States over the last 20 years and figured if the same thing happened in their natural markets in Asia they would be in deep trouble. If you have only one export commodity, you want to be sure there is going to be a market for that commodity for the foreseeable future. At $130/barrel the capital investments needed to switch from petroleum to natural gas make sense; at$55/barrel, it’s a different story.

  13. Jason says:

    JEWISH LOBBY MAKING THE MID-EAST SAFE FOR ISRAEL.
    CUT YOUR NOSE TO SPITE YOUR FACE.

    Thanks for the great article. The Saudis are losing billions of dollars dumping oil at low prices. Why would they want to lose so much money? They could easily make MORE money by selling LESS OIL! This proves that a deal has been made for other reasons to artificially keep the oil price low.

    The Judaists own and operate all 3 branches of our govt. and the media. They own and operate Obama whom they installed as a Manchurian President.

    Judaists see Iran and Syria as a threat to Israel that must be eliminated, and Russia supports both of them, so they are going after Russia and Putin directly. By eliminating Putin and Russia, they believe they can then eliminate Syria and Iran, and make the Middle East totally safe for Israel, where Israel can kill and terrorize the Middle East and maybe the whole world with impunity. So the US and Saudis made a deal to push oil prices lower. The Saudis are sunni and hate the Shia Iran and Syria. Plus the US promised them some weapons and other benefits under the table, such as free visas to the Saudis, etc. America for sale–to help the Judaists!

    • Replies: @Wally
  14. TomB says:

    As Hanna Khayyat said, this article is total hogwash.

    What it is however is a great illustration of the phenomenon of a certain type of mentality and individual out there who are monomaniasts in a particular way: Like, say, Noam Chomsky, their every thought, indeed their only thought, is to perceive the U.S. as the evil locus of all ills, even to the point of blaming its evil on what otherwise appears to be a great benefit. They are indeed conspiracists non-pareil, not believing just in lots of conspiracies, but indeed one and one only and that is some vague Washington-based cabal controlling or manipulating everything. Beyond even what has been described as the “blame America first” crowd, they ascend to the plateau of being a “blame American always and exclusively” club. (With Saudi Arabia being indicted here of course only because of American pressure/machinations.)

    As here, such specialists are just experts at generating tons of accusations and innuendos and what-could-conceivably-be-trues and what-every-knows and on and on to create an impenetrable sauce of … nothing much but a bunch of hopes that others buy into the monomania.

    And one of the tell-tale pieces of evidence you are dealing with such a mentality and character is that they can’t even restrain themselves despite the most compelling and damning evidence out there utterly destroying their premise(s).

    For example here it lies in one single fact that even it could not avoid mentioning: The fact that, while the central allegation of course its that the U.S. has used the Saudis as their cat’s paw to lower the cost of oil, the Saudis have not cut their production levels, period.

    Now, tell me, if there was *anything* like any conscious attempt to artificially lower the price of oil at the very *least* what you would have seen was the Saudis pumping like crazy to flood the market. But no, as the author again has to note, the Saudis have kept their levels very stable. Just exactly as they have been doing for along time, and just exactly as they say they are going to try to do for purely economic reasons.

    So how exactly did this run-down of oil prices happen if not via the Saudis flooding the market? Well of course there’s explanations, but none of them supporting the author’s thesis, and so being only the most lightly mentioned where unavoidable and not otherwise inquired into one bit. Such as the payoff that’s come from fracking, and the new production made possible of both oil and gas from oil shales.

    “Go back to high-school,” one wants to say to such writers, “and burn off there your simplistic, very juvenile sort of one-explanation world view.”

    And it’s rather risible that this argument appears here on the same day that its revealed that Obama has been trying to reach out in moderation to Putin (using Kissinger).

    No matter how risible they are though God are things like this exasperating. If only for how easy it is to demonstrate their hollowness. But they never stop: Show, as here, that if things were going *exactly* the other way—with oil prices rising—you would see them saying that *that* was a plot to make sure no Russian oil distress was felt so that it didn’t then take that distress out on the Ukraine.

    And of course with such prices being raised to … rip us all off, mercilessly, all at the hand of their cartoonishly envisioned conspirators controlling everything. They’re like the believers in The Protocols of the Elders of Zion: They never learn, they never go away, and they’ll never stop. “The Protocols of the Elders of Washington D.C.” is their bible.

    Ridiculous.

    • Replies: @Wally
    , @Metronomicon
  15. George says:

    Wasn’t the US military paying like $600 a gallon for fuel in Afghanistan? Losing that customer is why the price collapsed.

    • Replies: @ka
  16. Ross says:

    World oil production last year was about 90 billion barrels, Saudi Arabia has about 2 billion in excess capacity to use. That isn’t nearly enough to crash oil prices.

    The author is trying unsuccessfully to excuse the incompetence of the Putin government which has failed to diversify the economy, failed to build up a real sovereign wealth fund and failed to modernise what oil industry it does have. Flamboyant bare chested posturing may impress the Vatniks but it’s no substitute for having a capable leader which Putin isn’t.

  17. pyrrhus says:
    @Anonymous

    As I understand the situation, the US, Canada, Venezuela, etc. continue to produce oil flat out, regardless of price. Now who’s conspiring to lower prices, again?

    • Replies: @another fred
  18. Wally says: • Website

    It’s always interesting when govt. apologists attack “conspiracy theorists” while they promote their own truly bizarre and impossible conspiracy theories such as 9/11.

  19. Wally says: • Website
    @Jason

    Bingo!

    Who runs the Federal Reserve?
    Who runs Wall Street?
    Who owns the US Congress
    Who owns the White House?
    Who forces acceptance of the fictitious & impossible ‘6M & gas chambers’?
    Who runs the media / entertainment?
    Who dominates ‘academia’?
    Why is AIPAC the most powerful, dominant lobby, which regularly writes the text of Congressional bills and resolutions.
    Who is it that wants to censor free speech via the “hate speech” canard.
    Who is it the demands the US shed the blood of US troops for their interests?
    Who are the biggest racists on the planet?

  20. Wally says: • Website
    @TomB

    Regardless of who wrote the Protocols of the Elders of Zion the information contained within it is spot on. Oops.

  21. Chiron says:

    Everything written in The Protocols has happened.

  22. @pyrrhus

    Once a well is completed there are few companies or countries that can afford to cut off the income stream by not producing. Wells are only shut in when production costs are too high or if a well needs work.

    What is being reduced is the rig count, i.e. the number of wells being drilled is falling. Even there, some high cost rigs are contracted and bonuses have been prepaid, so that drilling is still going on. Also, where exploratory or wildcat wells have been successfully completed, development wells for a field may still make economic sense.

    It will take a while for production to drop.

    • Replies: @JoaoAlfaiate
  23. @another fred

    Another Fred,

    Your thinking is good but I would go a bit further. If a well is producing today and you decide to shut it in, there is a good chance the barrels of forgone production will “never” be produced in the economic sense. Imagine a well in the Permian Basin of west Texas. These wells can produce for years. You shut in the well for a month and forgo production of 100 barrels per day. Now these barrels are going to be produced at the end of the well’s life, say 15-20 years from now. If you apply a risk adjusted discount rate of, say, 12%, to revenue from selling those barrels twenty years from today, you will find the present value of those 3000 barrels is virtually nil, whether the oil price is $55 or $120.

  24. It may be worth making a comment or two about oil production from marginal areas in the Bakken play in North Dakota. These comments apply to oil production from other marginal areas as well. If oil is $60 per barrel, the net back to producers there is about $45 per barrel because of high transportation and marketing costs. Assuming the companies operating in marginal areas have used bank loans to fund there operations, they must now sell every barrel of oil they can produce and at the same time make every effort to cut operating and capital costs to the bone.

    If you have an infill drilling program, what net back price do you use to justify drilling a new well? $35/barrel? $30/barrel? Will your bank let you drill the well or will the bank want any free cash flow applied to debt?

    Vulture capital funds are going to have a “hay day” in the oil patch as financially weaker producers become unable to pay their bankers and their assets get sold off.

    • Replies: @Metronomicon
  25. @JoaoAlfaiate

    If one is old enough and has a good memory, one can still remember when the Saudis rationalized sinking the oil to about 20$ after the Soviet invasion of Afghanistan using almost exactly the same logic.

    Such transparent agitprop.

  26. @TomB

    What you obviously are, however, is a great illustration of the phenomenon of a certain type of mentality and individual out there who are monomaniacal in a particular way: Like, say, Noam Chomsky,your every thought, indeed your only thought, is to contradict and antagonize everything that might hint at interconnected globalized elites imposing their selfish whims on the world, even if it means rationalizing away the neocon consensus as “some vague Washington-based cabal controlling or manipulating everything”.

    Such religiously willful, blatant and self-congratulatory stupidity you display here on regular basis cannot be the product of a healthy mind.

  27. TomB says:

    What’s interesting about this falling energy/oil price issue isn’t the ridiculous issue raised by this author but indeed something far broader and more important.

    Just think, that is, of how long and thoroughly and totally not just our Left but our media too have swallowed and pushed and disseminated the almost total free-market-free understanding of the issues surrounding oil and energy.

    To the point where one cannot perceive any sort of economics at all in their talk, utterly divorced from what is of course the central consideration of economics which is supply and demand.

    As if, that is, it’s all politics. Which of course makes sense given not only that same is the only thing they understand, but the only thing they believe should determine everything.

    And thus we get treated to such baloney as the endless periodic predictions that we are running out of oil and indeed all energy sources, or “peak oil” or etc. and so forth.

    So now of course that high oil and energy costs have prevailed for a time and the utterly predictable has occurred they are just left … speechless.

    I.e., given those high oil and energy costs have prevailed for such a time same has resulted in great attempts to lessen demand, and great attempts to increase supply, all of which has now generated an increased supply and a drop in prices.

    But of course even for those politically-obsessed people who might understand this most basic of economic realities they can hardly be trumpeting the success of this free-market dynamic. For to do so would be to trumpet the success of the free-market itself.

    Instead then of it being widely or even rather rarely pointed out to the public about how the free-market and Adam Smith’s “invisible hand” works to accomplish the incredibly difficult feat of both satisfying demand and keeping the costs of goods as low as economically possible, no, we get .. ridiculous political conspiracy theories such as the author here presents.

    … and, a befuddled public remaining susceptible to whatever other political crackpot ideas that might be forever ginned up and used to justify evermore meddling with the free market for the greater power and glory of the political class.

  28. ka says:
    @George

    It was paying to itself ,though through some front companies and all American . Afghan pocketed the money but not much , no more than the janitor at the big hotel does and big hotel is the American front company. Certain jobs could not be done by the predator nation.It need locals.

  29. Bulu says:

    Oil has been used as a tool to coerce countries in the past . America put pressure on Japan before PH happened . It blockaded the shipment of the oil. Arabs put oil embargo in 1973 after discussion among themselves . Neither US nor Saudis took any page out of Adam Smith. In 1980 Saudis strangled both Soviet and Iraq by pressing the price down .
    Free Market exists in books meant for high school drop out . Its a bigger topic but that’s what has benn repeatedly proved by the policies of UK,US,S Korea,Singapore,and Japan at the formative stages of their economies . All protected their markets
    Current precipitous fall in oil price doesn’t make economic sense . It makes a lot of political sense for Saudi ( hurting Russia,Iran,and US ) and for US ( against Russia ,Iran,and Venezuela ) . Both can absorb domestically harmful low price.
    Have we heard this before? US would dump wheat to rot so the prices don’t go down. US will pay farmers not to plant so that market won’t be flooded . Politics have always trumped economy. Otherwise oil companies would be doing business with Iran and would have done with Saddam.

  30. dsp says:

    I don’t think Mr. Whitney should waste his time replying to clowns like Chris Loony.

  31. Jefferson says:

    Dropping oil prices means the personal net worth of many Russian billionaires is dropping fast and that is a good thing because Russia is not a friend of The United States. The Russian elite seeing more of their wealth evaporate is a good thing.

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