Kemp: Oil Prices and Saudi Diplomacy

Certainly those factors (sluggish demand, rising non-OPEC supply, and behavioural reactions in financialised commodity markets) can provide a plausible explanation for the near-halving of oil prices since June. There is no need to invoke a conspiracy theory about a secret plan to damage Iran and Russia to explain recent price history.

Some conspiracists respond by suggesting that while Saudi Arabia may not have triggered the price slide, it has done nothing to prevent it. But there is nothing Saudi Arabia could have done to keep prices near $100 a barrel in the medium term.

As Naimi explained, if Saudi Arabia had cut production, it would simply have encouraged more output from higher-cost producers in the United States, Brazil and elsewhere. The kingdom would have lost market share without gaining an enduring improvement in price.

If lower oil prices provide a diplomatic benefit to Saudi Arabia and the United States by intensifying economic pressure on hostile states such as Iran, Russia and Venezuela, that has been a side benefit, not the principal policy objective.

Saudi Arabia's only rational response to rising shale oil supplies and stagnating demand for crude was to allow prices to fall to curb shale investment and buy back some of the demand growth that had been lost.

To read a conspiracy into recent events is both unnecessary and entirely unproven. Proponents of the "oil as a diplomatic weapon" theory have not cited a single piece of direct evidence. In the circumstances, there is no reason to doubt the Saudi oil minister's own explanation.

In the past, I have criticised Saudi policymakers for not communicating their strategy more clearly, creating an information vacuum into which outsiders have projected their own views.


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WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Ekomobong Ekanem  |  January 23, 2015
The Saudis are conniving with the US to play politics with oil price, period.
Husnain Khan  |  December 26, 2014
Extremely good article giving a balanced view on the possible reasons of falling oil prices. A lot of people now a days seems to believe that there is some sort of conspiracy behind the falling oil prices but the writer has very correctly said that there are no proofs to substantiate this and even if this is the case, the final outcome most likely will be determined by many complex market scenarios which cannot be controlled.
Philippe  |  December 24, 2014
Very interesting article well thought of article. None the less the power of Saudis Arabia is based on the oil, not so much gas. Undeniably the power of Saudis Arabia, within the Islamic world is the guarantors of the Muslim faith, the Sunni interpretation of the Muslin faith. The Saudis competition within the Muslim world is the Shia theology, Iran been the propagandist of this interpretation. We as outsiders do not understand the confrontation at hands. The leverage Saudis Arabia has over Iran is it oil production. Should Iran be a nuclear power, Saudis Arabia will lose any leverage on OPEC; the Iranian would dictate the OPEC production policy by just having a nuclear threat understood. Iranian leader are much more fanatic and power hungry, the Middle East and Israel will never be the same. For the US, the crash of oil price is welcome. It is another economic problem Iran has to deal with. For the Russians the same, they have chosen the wrong side of this religious war. The Russian have placed an important strategic place in keeping their naval base in the Mediterranean Sea in Syria. The Russians have limited access outside, the Pacific north, Vladivostok, the artic sea, shut down 5 month a year an ice, and the Black sea. For the present US government this situation means dealing with two enemies without lifting a finger. The Saudis are not primarily having their sight on the US fracking producers, it is a collateral gain.
bert stahr  |  December 23, 2014
The top 10 biggest oil fields in the world contain an ESTIMATED 312,300,000,000 bbls. World daily usage is 92,000,000 bbls/day=9.25 years of supply at the current rate. Then what with about half the worlds existing known supply gone? Check replacement cost/bbl. for conventional oil. This oil punch up is 100% political. Saudi needs between $85-$95 to remain viable. At $50/bbl Russia is better placed and will last at least 5 years, Saudi maybe 3. If OPEC cut production by 10 million bpd there would be a savage oil shortage because the rest of the producing world doesnt have the infrastructure to deliver even if they wanted to. Prices would hit $200/bbl + and OPEC would make 3 times as much revenue by dropping production by a third. So its 100% political because only a lunatic would overproduce at a huge loss of a finite resource to keep "market share" and only an idiot would believe this story.
ABS  |  December 23, 2014
I think its rather naive to place your trust solely on evidence and assume everything else is pure speculation. It would be ideal to have motives and reasons spelt out about everything, however that is very rarely the case. Its rather perplexing you are prepared to accept the word of Yamani as evidence that his huge selling strategy in the 86 meltdown was not politically motivated. And in an increasingly complex world, especially with the heightened political tensions between the two Middle Eastern superpowers (Saudi and Iran), it is even more difficult to decipher the truth. It would be rather silly to just take the statements of the statesmen as the only valid form of evidence and not reflect on any deeper motives. There cannot be purely economic motives here, there must be political ones too. It is even more unhelpful to assume otherwise.


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