I’ll say it up front–I don’t understand the complicated economics and geopolitics behind the rapid slide in the international price of oil.
But its clear that the there’s a lot going on, and a lot that we should be paying attention to, beyond the pleasant relief we feel at the gas pumps.
I searched for something like “geopolitics of oil price drop” and found lots of competing theories, some very disquieting if you worry at all about issues of war and peace.
NY Times columnist Tom Friedman has suggested the decline in oil prices could be part of a U.S. effort to undermine the economies of Russia and Iran (“A Pump War?“).
Friedman isn’t alone. For example, check this recent column from OilPrice.com (“Did The Saudis And The US Collude In Dropping Oil Prices?“).
Another theory is that Saudi Arabia is pushing prices lower, and not compensating by lowering production, in order to undermine the boom in U.S. shale oil production. The U.S. has increased its domestic oil production, but the boom relies on high oil prices to sustain the high-cost production techniques.
Here are some articles reflecting this perspective.
Financial Timnes, “Falling oil price raises questions on viability of shale.”
OilPrice.com, “Low Oil Prices Hurting U.S. Shale Operations.”
Business Insider, “The Pace At Which US Rig Counts Are Tumbling Is Unusually Intense.”
Then it starts getting complicated.
Reuters, “Saudi Arabia is playing chicken with its oil.”
The kingdom has two targets in its latest oil war: it is trying to squeeze U.S. shale oil—which requires higher prices to remain competitive with conventional production—out of the market. More broadly, the Saudis are also punishing two rivals, Russia and Iran, for their support of Bashar al-Assad’s regime in the Syrian civil war. Since the Syrian uprising began in 2011, regional and world powers have played out a series of proxy battles there.
While Saudi Arabia and Qatar have been arming many of the Syrian rebels, the Iranian regime—and to a lesser extent, Russia—have provided the weapons and funding to keep Assad in power.
Since the U.S. invasion of Iraq in 2003, the traditional centers of power in the Arab world—Egypt, Saudi Arabia and other Gulf states—have been nervous about the growing influence of Iran: its nuclear ambitions, its sway over the Iraqi government, its support for the militant groups Hezbollah and Hamas, and its alliance with Syria.
The conflict is now a full-blown proxy war between Iran and Saudi Arabia, which is playing out across the region. Both sides increasingly see their rivalry as a winner-take-all conflict: if the Shi’ite Hezbollah gains an upper hand in Lebanon, then the Sunnis of Lebanon—and by extension, their Saudi patrons—lose a round to Iran. If a Shi’ite-led government solidifies its control of Iraq, then Iran will have won another round.
Today, the House of Saud rushes to shore up its allies in Bahrain, Yemen, Syria and wherever else it fears Iran’s nefarious influence. And the kingdom is striking back at Iran, and Russia, with its most effective weapon.
Center for Geopolitical Analysis, “It’s dangerous to corner Russia too much.”
In any case, oil politics is complicated, interesting, and potentially dangerous.
Please share any good explanations or analyses if/when you find them.