We have a war going on globally and its flying right under the radar. Oil and the drop in price have created a massive amount of turbulence. The players are many and the alliances are blurred to say the least. While at war in some cases in the traditional manner, many of these countries are on the same side in the Oil War. While there are many more players, these are the headliners of the World at War for Oil. Let’s look at the players and the effects they will see.
United States and Canada – Low prices are great for the consumer, right? Well remember when your mom would say it’s all fun and games until someone gets hurt. That is where we are today as the low prices are going to eventually affect millions of people around the world, specifically in the U.S. and Canada as already seen. The shale boom has been a great story and created thousands of jobs and helped put the U.S. in a role as leader in the Oil world. Unfortunately, it is coming to an end. Companies, not just oil producers, are laying off thousands. Oil services companies and even the stores and leisure companies that fulfill the needs of the people who work in the oil industry are feeling the pinch. We are coming into a major shift and could see our economy take a huge hit as we begin to see the pink slips handed out. So while the cost at the pump is low, people might not be able to afford cheap gas if they don’t have a job. . The U.S. is seeing ancillary benefits from this, however, on a purely political landscape. Our enemies, if you will, such as Russia are hurting. Low oil coupled with sanctions has decimated the Ruble and the Russian Central bank and Putin are scrambling to get ahead of this. Iran is continuing to get squeezed with heavy sanctions and will need to become a more willing participant in the nuke talks. Venezuela who needs oil much higher and also needs the U.S. to refine their product is also seeing hard times. So, from a political landscape the price of oil is a benefit to the U.S. Low oil prices will eventually hurt the consumer.
Russia – While being decimated by this and with a breakeven of over $100 a barrel they are far from a solution as the Ruble has crumbled and there is little doubt the U.S. is not feeling bad watching Putin squirm. Putin has a very tough uphill battle as not only is oil an issue, but the sanctions also continue to hurt the Russian people. We will see a more aggressive Russia no different than corning a Bear. Ever heard the saying “don’t poke the bear?” Well, we are poking pretty hard.
Iran – A big win for the U.S. as low oil prices coupled with heavy sanctions are crippling Iran. While we are trying to negotiate a nuke deal and sanctions are taking a toll, the price of oil is squeezing Iran even more. They recently came out and stated they could withstand oil prices as low as $25. Now that is laughable at best and they actually need over $130 a barrel. The Saudis are also loving this, as they are bitter enemies and there is little doubt that gamesmanship is being played on the side of the Saudi’s as well.
Saudi Arabia – Low oil prices are helping the Saudis accomplish a number of items. By continuing to stand firm with not cutting production, they are bleeding the Iranians who they dislike, they are also bleeding the Shale producers in the U.S. and Canada. Their posturing is simply that and most do not believe they will hold firm and clearly blink first.
Iraq – The biggest issue is the new war with ISIS and the ability to pay for this while continuing to rebuild their country. With oil so low the Iraqi’s will continue to bleed and plead for the Saudis to cut production.
Kurds – While not a country per say they are an autonomous region and have a lot to gain and lose based on the price of oil as it is their only real income. This is hurting them and making it more difficult to fund the defense against ISIS as well.
Venezuela – Another win for the U.S. With inflation at record highs, the need for oil to be over $150 a barrel this is a country that is on the brink of destruction. The U.S. hopes in secret for this to unravel and force the people to rise up.
OPEC states that non-OPEC countries need to cut production to stabilize prices. Non-OPEC countries wonder why that would be the case. I myself wonder why would we do that. OPEC is mystifying to begin with and the fact we have let a monopoly take control of what today is our most valuable resource is unimaginable so I say pump baby and don’t stop until they drop. So we are in for a long drawn-out battle as Saudi Arabia has stood firm and has decided not to cut production.
The Saudis have irritated countries in and out of OPEC seeing this as posturing against the U.S. Shale producers while hurting their own OPEC countries. Here are the ramifications for this. First they are playing a very dangerous game of who will blink first. The Saudis are clearly trying to hold prices low and begin to squeeze the U.S. shale producers. In addition, they are putting pressure on the Iranians at the same time.
As a matter of fact, taking a look at a recent CIT report and Reuters charts, each show that not one country can afford oil to be below $54 a barrel with Kuwait at the lowest break even point. So, what do the Saudis think they are accomplishing?
In the end, the U.S. will stand tall, become oil independent, and not look back. The reality is we need to have prices stabilize around $60/$70 so we can continue to pump oil while achieving renewable energy sources at the same time.
Donovan Lazar | Chief Revenue Officer
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