Why is Saudi Arabia using oil as a weapon?

A recent meeting in Vienna, between the member states of Opec finally uncovered what the world had expected for months.

Saudi Arabia is playing politics with oil, forcing Opec to maintain its current production levels at 30m barrels per day, to force down the price.

Consequently oil prices have fallen 35% in 2014, tipping under the $70 mark for the first time since May 2010.

The question is why the Saudis would risk the goodwill of other Opec members, simultaneously emasculating the organisation and undercutting their ability to use it in the future to serve their interests.

It is a game of high-stakes poker and in the long run will cause the Saudis some harm, but that is not where their immediate thoughts lie.

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  • mauser 98

    fracking company shares have plunged. Russian revenue also
    when prices are high it is a war on us.

    lots of oil. all a scam shakedown

    • Yup and this has and will hurt the oil sands and pipeline ventures as well. It is a double edged sword however and will come back to bite the Saudis.

      • mauser 98

        ..from 2013

        Up to 233 billion barrels
        of oil has been discovered in the Australian outback that could be
        worth trillions of dollars, in a find that could turn the region into a
        new Saudi Arabia.
        http://www.telegraph.co.uk/news/worldnews/australiaandthepacific/australia/9822955/Trillions-of-dollars-worth-of-oil-found-in-Australian-outback.html

        • Exile1981

          Plus new finds in Manitoba of conventional oil and new finds of the oil sands extending into Sask.

          The Saudis need to have a certain cash flow to keep the system from crashing. The want oil prices high, which they usually do by restricting output; but with all the new sources of oil in the west they can’t do that anymore so the only option is drop the price so low that no one exploits the western finds and also fund and oil groups in the west to change the political climate.

          It’s a short term benefit but in the long run it is costing them a fortune in income and when the price does go up the west will go back to domestic production. It can only work if they can sway political opinion against domestic production.

          • mauser 98

            and Bakken oil field in Montana is huge.
            100% of Alaskan pipeline oil goes to Asia

          • johnbrooks3

            With the amount of oil in the world in the ground, what keeps our crust lubricated?

          • mauser 98

            some say “abiotic”
            hydrogen, carbon combine deep down and there is oil (?)
            oil found way deeper than any dinosaur. maybe.

          • Clausewitz

            Oil is found in Sedimentary rock. So yeah carbon based life that was once on the surface is the basis for petrochemicals. Most of the oil is not from “Dinosaurs” but from plant based life. Plant life accounts for far more biomass than any other species.

          • mauser 98

            oil wells now drilled past 12,000 meters below where any life existed.
            Jovian moon Europa is a solid ball of methane a hydocarbon fuel.
            no dinosaurs there.
            am furthest thing from expert but abiotic oil may be possible. no ?

          • Clausewitz

            One phrase, “Subduction zones”

          • mauser 98

            OK … oil companies would never lie.
            oops Saturn moon Titan

            While
            most methane on Earth is produced by microbes, Titan’s methane probably
            has a non-biological origin, says Lunine. “Methane is the easiest
            organic molecule to make in an environment like Titan’s; it does not
            call for a biogenic explanation.” Titan’s large store of methane may
            have been trapped when the satellite formed along with Saturn, or it
            could have been made in the moon’s interior, through a reaction among
            carbon dioxide, water and rocks. – See more at:
            http://www.astrobio.net/news-exclusive/saturns-methane-moon/#sthash.eDgXdovi.dpuf

            While
            most methane on Earth is produced by microbes, Titan’s methane probably
            has a non-biological origin, says Lunine. “Methane is the easiest
            organic molecule to make in an environment like Titan’s; it does not
            call for a biogenic explanation.” Titan’s large store of methane may
            have been trapped when the satellite formed along with Saturn, or it
            could have been made in the moon’s interior, through a reaction among
            carbon dioxide, water and rocks. – See more at:
            http://www.astrobio.net/news-exclusive/saturns-methane-moon/#sthash.eDgXdovi.dpuf

          • Clausewitz

            Different temps, different available gasses, different pressure gradients. Methane is a simple gas whereas Oil is much more chaotic, this is the reason why it must be refined. If you believe that all compounds aggregate the same way in relationship to different environments, then you’re well on your way to becoming a global warmist, because there is no deviation in anything especially weather and it’s consequences.

          • mauser 98

            C… you are most informed .. YIKES!! i need help here!
            is abiotic possible?

          • mauser 98

            AGW??

          • Maggat

            That is an interesting theory, and one that perhaps makes more sense than the fossil theory. If it is proven correct then oil is not a finite resource.

          • Clausewitz

            It may not be infinite, but as of today there is a shelf life of over 500 years even when you take into account the expansion of mankind.

          • Clausewitz

            Depends on the environment. Needless to say I would not invest in any real estate futures on Titan.

          • Clausewitz

            /facepalm. The percentage of oil being mined from the Lithosphere is infinitesimal to other liquids that remain in situ. Also the Lithosphere does not “Need” liquids to “lubricate” the crust. Solids of the volume of the lithosphere, under the pressures that they endure do not act like solids that need lubrication, but act as plastics. The most recent example are the Himalayan Mountains.

          • Maggat

            Cherry Point?

        • johnbrooks3

          I’m still amazed we don’t know where all the oil is. I mean, how can one miss this size of a discovery all these years?

          • mauser 98

            probaly we still know little of the Earth

          • Clausewitz

            Better methods of exploration. Better understanding of the theories on how oil congregates. The oil extraction from the past 200 years is the easy stuff that was cherry picked using the technologies of the day. The first oil field in Canada was down near Sarnia in Petrolia. The name might have been a give away.

  • Clink9

    Saudis are still partying like it’s 1973. Just nuke them into a large decorative glass that was popular back then.

  • David Murrell

    “Nevertheless the Kingdom sits on $741bn of currency reserves and posted a $15bn
    surplus at the end of last fiscal year, and the Saudis can absorb the cost of
    budget deficits for a few years if needs be”.

    The author of the article got the above point right — and Saudi Arabia’s enemies (Iraq, Iran, Russia) need a high prices of oil to avoid high budget deficits. The Saudi’s enemies will run into debt trouble before Saudi Arabia ever does.

    Also left unsaid is the recovery price of oil. U.S. and Canadian fracking is high cost oil. Russia’s cost of oil is also high. But Saudi oil is very cheap to pump (lying a few feet under the sand). As the price falls, the U.S. and Russia will cut back first. As supply is cut, then the world price will go back up. This is the game Saudi Arabia is playing: it can outlast its enemies.

    Personally I am in an unrealized capital loss position with my Crescent Point stock. But cheap oil is relatively good for the world economy, in the non-resource areas. Also, if Russia, Iran and Saudi Arabia all losing money and royalties, that can’t be that bad a thing. Perhaps the Saudis will not finance so many mad-dog madrasses.

    • Frau Katze

      The problem for the Saudis is that the economies of the US and Canada are very diversified. Oil takes a hit, but other sectors gain from the lower prices.

      But I suspect are just trying to force the oil companies out of business…

      But as you say, Iran is suffering big time, with the sanctions too. Russia not happy either. Nor Venezuela (has ties to Iran).

    • Maggat

      “mad-dog madrasses” isn’t that just the real problem.

  • American oil men have proved the world is awash in oil at $100 a barrel. On a daily basis new “Saudi sized” fields are being found literally all over the world.

    OPEC and Saudi may still be able to affect prices on the short term. But the world wide free market pricing system (we all have to compete on some level) will reduce the power of ME oil producers.

    Saudi Arabia (Sunni) is doing what it can to keep the Iranians (Shia) in place. At least for the time being.

    • Raymond Hietapakka

      …”daily basis”…”literally all over”…c’mon, now…Not.

      • Clausewitz

        Actually he hit it pretty much dead on. Remember 20 years ago when everyone thought that there might be diamonds in Canada was a fools dream.

    • Norman_In_New_York

      It’s more than mere exploration. Newer American fracking and horizontal drilling technologies have considerably reduced the cost of production, so that the Saudis had no choice but to stay competitive.

  • johnbrooks3

    but but but, aren’t we at PEAK oil?

    • mauser 98

      back in the 70’s “oil crisis ” 200 full oil tankers were parked off US east coast. to drive up prices.

    • Clausewitz

      No.

  • Hard Little Machine

    For the Saudis, vast amounts of their oil profits are reinvested in western banks, corporations and equities. What’s bad for the Saudi economy is good for the Saudi royal family. If oil is cheap than the industrial firms the Saudis own show better profits.

    • Ed Ellison

      Clever those Saudis. They get it both ways and get to break the backs of their enemies.
      Not so good though that Canadian oil gets hit too.

  • Pete_Brewster

    The House of Saud want not just to punish their enemies in Russia and Iran but to help their friends, or rather their clients—Western governments who continue to encourage Muslim settlement in their countries in return for Saudi “investment” in their theft bonds.

    The idea is that lower oil prices will blunt the impact of austerity enough to keep the rabble quiet and reduce the appeal of patriotic and anti-Muslim parties, UKIP, the Front national and so forth.

    Pro-Muslim parties in North America will also benefit, as low prices discourage further internal immigration to oil-rich regions, whose people invariably vote for patriotic parties whenever they can. An Ontario tax-peon can’t as easily give Wynne the Trudeau salute and move to Alberta if there’s no work in Fort McMurray any more.

    But he’ll be able to fill up his car for less, so he’ll be expected to be grateful.

  • Raymond Hietapakka

    They piss an awful lot of their money away on bling…

  • AlanUK

    Why is Saudi Arabia using oil as a weapon?
    Because it can??

    • Clausewitz

      Because people like Obama have ulterior motives to allowing the US to become energy self sufficient.