Here's one of the many problems causing this: One of only two (Crimea and Syria) Russia's only two warm ocean water ports that don't freeze in the Winter time. Russia doesn't want to lose it's port in Syria. So, if Assad falls they lose one of only two warm water ports for Russia. Also, ISIS is a thorn in Russia's side because many of the leaders are Chechen Separatist Rebels from Chechnya. So, a win by ISIS over Assad will be very bad for Russia and could incite Chechens and other Muslims in Russia to rebel again. So, this is why Russia isn't as worried about the price of oil as you might think. Also, this is why the U.S. and Russia are talking now about how to keep Assad (or at least an acceptable transitional government in power so ISIS doesn't take all of Syria and kill all Alawite Shia Muslims left there. Europe is involved in these talks too and likely most Sunni nations in the Middle East are directly or indirectly involved too.
A Game of Chicken ... With Oil
You'd think petro giants like Russia and Saudi Arabia would be cooling production right about now. Nope.
Ozy
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A Game of Chicken ... With Oil
By Simon Constable
21 hours ago
You'd think petro giants like Russia and Saudi Arabia would be cooling production right about now. Nope.
Simonomics: A regular look at the global economy from a former staff columnist at The Wall Street Journal.
In the world of oil, a little noticed but
fascinating game of chicken has broken out. And the unblinking eyeballs
happen to involve a guy named Putin and a prince who enjoys fast cars,
all 200 of them that he supposedly owns.
Does any of this ring a bell? As some of you may have surmised, the two biggest so-called petro giants, Russia and Saudi Arabia, are locked in a battle to maintain control over the global dominance of oil that’s slowly slipping away as other forms of energy like natural gas begin to grow in importance.
Both countries produce gigantic sums of oil: 11.6 million barrels a day for Saudi Arabia, and 10.9 million for Russia, according to the U.S. Energy Information Administration, a government body that tracks this industry. That’s enough to place them second and third in the world, behind only the United States.
Does any of this ring a bell? As some of you may have surmised, the two biggest so-called petro giants, Russia and Saudi Arabia, are locked in a battle to maintain control over the global dominance of oil that’s slowly slipping away as other forms of energy like natural gas begin to grow in importance.
Both countries produce gigantic sums of oil: 11.6 million barrels a day for Saudi Arabia, and 10.9 million for Russia, according to the U.S. Energy Information Administration, a government body that tracks this industry. That’s enough to place them second and third in the world, behind only the United States.
The two countries should slow down how much they’re tapping those oil wells. But neither can or is willing to.
And that’s where the problem begins. As anyone who’s been at the gas pumps lately has noticed, the price of oil is
dropping like a heavy stone. It’s now around $43 a barrel, less than
half what it was a year ago. Few commodities have fallen that quickly,
and here in the U.S., the country can stomach the drop because the
economy benefits from cheaper energy costs. But Saudi isn’t quite that
lucky, since an estimated 80 percent of its budget relies on oil,
according to the CIA World Factbook. As for Russia? Almost 70 percent of
its export revenue is oil based, the EIA says.
The obvious answer
when prices drop is to reduce supply. In other words, the two countries
should slow down how much they’re tapping those oil wells. But here’s
where it gets pretty intriguing: Neither can or is willing to.
Instead,
both are continuing to sell as much oil as they possibly
can, regardless of what that does to world prices, says Max Pyziur,
analyst at the Energy Policy Research Foundation. There is a logic to
this. They’re holding steady with their prices until they’ve secured
relationships with the countries that need energy. Putin, for one, wants
Russia to keep pumping 10 million barrels a day through the end of this
decade, while Saudi is taking a similar approach to maintain ties with
its customers, says Emily Stromquist, an analyst at research consulting
Eurasia Group in London.
But
how long can this go on? Quite a while, with some forecasting production
cutbacks as far off as 2017. No wonder then, as Greg Priddy, an oil
analyst at Eurasia Group, puts it, “The oil world is in a battle for
market share.” What’s more, it helps that Russia and Saudi Arabia have
government cash reserves that top $300 billion and $700 billion,
respectively.
Still, it’s not
hard to envision an endgame that won’t be all that pretty for these
great big oil leaders. The more they both keep pumping oil and adding to
the glut, the more likely they are to burn through those reserves. And
that’s where the real financial pain comes in: After all, the funny
thing about cash reserves is they can only be spent once.
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