Why Oil Is Plunging: The Other Part Of The "Secret Deal" Between The US And Saudi Arabia

Tyler Durden's picture

Two weeks ago, we revealed one part of the "Secret Deal" between the US and Saudi Arabia: namely what the US 'brought to the table' as part of its grand alliance strategy in the middle east, which proudly revealed Saudi Arabia to be "aligned" with the US against ISIS, when in reality John Kerry was merely doing Saudi Arabia's will when the WSJ reported that "the process gave the Saudis leverage to extract a fresh U.S. commitment to beef up training for rebels fighting Mr. Assad, whose demise the Saudis still see as a top priority."

What was not clear is what was the other part: what did the Saudis bring to the table, or said otherwise, how exactly it was that Saudi Arabia would compensate the US for bombing the Assad infrastructure until the hated Syrian leader was toppled, creating a power vacuum in his wake that would allow Syria, Qatar, Jordan and/or Turkey to divide the spoils of war as they saw fit.

A glimpse of the answer was provided earlier in the article "The Oil Weapon: A New Way To Wage War", because at the end of the day it is always about oil, and leverage.

The full answer comes courtesy of Anadolu Agency, which explains not only the big picture involving Saudi Arabia and its biggest asset, oil, but also the latest fracturing of OPEC at the behest of Saudi Arabia...

... which however is merely using "the oil weapon" to target the old slash new Cold War foe #1: Vladimir Putin.

To wit:

Saudi Arabia to pressure Russia, Iran with price of oil

 

Saudi Arabia will force the price of oil down, in an effort to put political pressure on Iran and Russia, according to the President of Saudi Arabia Oil Policies and Strategic Expectations Center.

 

Saudi Arabia plans to sell oil cheap for political reasons, one analyst says. 

 

To pressure Iran to limit its nuclear program, and to change Russia's position on Syria, Riyadh will sell oil below the average spot price at $50 to $60 per barrel in the Asian markets and North America, says Rashid Abanmy, President of the Riyadh-based Saudi Arabia Oil Policies and Strategic Expectations Center. The marked decrease in the price of oil in the last three months, to $92 from $115 per barrel, was caused by Saudi Arabia, according to Abanmy. 

 

With oil demand declining, the ostensible reason for the price drop is to attract new clients, Abanmy said, but the real reason is political. Saudi Arabia wants to get Iran to limit its nuclear energy expansion, and to make Russia change its position of support for the Assad Regime in Syria. Both countries depend heavily on petroleum exports for revenue, and a lower oil price means less money coming in, Abanmy pointed out. The Gulf states will be less affected by the price drop, he added.

 

The Organization of the Petroleum Exporting Countries, which is the technical arbiter of the price of oil for Saudi Arabia and the 11 other countries that make up the group, won't be able to affect Saudi Arabia's decision, Abanmy maintained.

 

The organization's decisions are only recommendations and are not binding for the member oil producing countries, he explained.

Today's Brent closing price: $90. Russia's oil price budget for the period 2015-2017? $100. Which means much more "forced Brent liquidation" is in the cards in the coming weeks as America's suddenly once again very strategic ally, Saudi Arabia, does everything in its power to break Putin.

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Kirk2NCC1701's picture

Expect "Asymmetric Responses", bitchez.

kaiserhoff's picture

I have a hard time believing old Horseface Ketchup Monster had a hand in anything,

  that didn't immediately turn into a steaming pile of Wookie Doo.

COSMOS's picture

All the Russians have to do is sink one or two tankers with their stealth subs.  Or declare Saudi Arabia a nation that supports terrorists and Strike their refineries in revenge for Beslan massacre.  Oil at 300 per barrel and there is nothing the USA can do because they have created the precedent.

Latina Lover's picture

Saudi Arabia can only play this game for so long before their finances are affected. Meanwhile the USSA fracking  stock prices are taking on the chin.  

Russia will suffer in the short term, but they will endure. The alternative, of western control over their economy, with a repeat of the disastrous 1990's, is deeply engrained in modern Russian memory.

knukles's picture

Wait wait wait wait wait a minute hold on holdjer horses....
Does this mean everything I came to believe about Fracking and the Bakken Bits being the energy independent future of perpetual free shit for America is wrong?

    ...sigh...

I MISS KUDLOW's picture

free market capitalism is the best path to prosperity

knukles's picture

By the way, I can read lips.

Kerry is saying to that dude; "I mean you shoulda seen the size of my left teste before they lanced the boil.  Sure glad I got that done before the circle jerk tonight.  I can't wait.  Didju get those little dancing boys, again?  I brought you some more great Richard Simmons workout tapes you like, Kingsy!"

What the fuck do these people talk about?

Bangalore Equity Trader's picture

Listen are you sure about this?

Didn't Kerry allow Saudi Arabia access to all NSA records for phone, Internet, other communications so that they could monitor USSA citizens to "HELP" the "HOMELAND"?

SafelyGraze's picture

cheap oil means no need for those molten salt thorium facilities

 

Anusocracy's picture

This is what they did to the Soviet Union, isn't it?

Only the government in the Soviet Union was bankrupt from top to bottom. This time the West is far deeper in debt than Russia.

End the petrodollar and the West is a goner.

wee-weed up's picture

No "secret deal" will overide what will happen to the price of oil when the Israelis hit Iran.

Shropshire Lad's picture

And the Russians take out Tel Aviv, as they have already promised to in the event of an Israeli Terror attack on Iran.

TahoeBilly2012's picture

Putin will never strike first, he is a Christian. The Jews know this (and Satanic Royal buddies Bush/Kerry et al).

People you need to see what is going down. Putin will not strike first no matter what. The dark forces will continue to work against this as they see it as a weakness. Wrong! He is simple following his own Christ, that simple. He will fight back when he feels he must and he will spare civilian lives as any Christian would. 

The Jews have shown their hand a long time ago. They hold no element of surprise. 

quadratic_equation's picture

Why are you including Bush in this blame when Bush is so friendly with Putin back when he was the President?  Remember Putin use to visit Bush in Crawford, TX back in those days.

You are also ignoring Obola who's the main petpetrator of what's going on now.  He started with Syria then with Russia knowing Syria is protected by Russia.  It may seem like a conspiracy theory but they're doing this because it's so obvious that people wouldn't believe it.

rocker's picture

Russia is just another farce to feed the sheeple. We want to get the Russian speaking Ukranians to join Europe when they voted to stay with Russia. The more important question is will they ever push back and want Alaska back as the U.S. stole that from them in the day. They are actually a very rich resourse nation. So those who believe in finite resourses take notice. Just ask Germany and Europe.

Lore's picture

Things would sure be a lot simpler if Israel would just move.

Incubus's picture

into a dee-lux apartment (in the sky)

Keyser's picture

They could all move to the desert in west Texas and no one would know any better... Plus, they should feel right at home... 

StormShadow's picture

Or maybe a Nevada proving ground? They'd truly feel right at home

fudge's picture

End the petrodollar and the West is a goner.

Tick Tock

Yuan Euro Direct Trading Begins on 30-09-2014

http://www.bloomberg.com/news/2014-09-29/yuan-euro-direct-trading-begins...

India’s readiness to join the SCO

http://www.telegraphindia.com/1140913/jsp/nation/story_18830846.jsp

Iran and Pakistan are looking for full SCO membership.

http://in.rbth.com/world/2014/09/15/india_and_pakistan_expected_to_becom...

http://en.ria.ru/world/20140910/192803369/Iranian-Diplomat-Tehran-Seeks-...

In June of this year the members of S.C.O. commenced discussion of a merger of the Shanghai Cooperation Organization with the Collective Security Treaty Organization = Military Alliance to match the BRICS trading bloc and a counter to NATO.

Iran joins the BRICS and with the German YUAN exchange in Frankfort the _BRICS_ acronym then becomes _BIg RISC_ for Petro$$$

Tick Tock WW3

supermaxedout's picture

Fudge,

cant't upvote you. Its somehow blocked.

 

 

robertocarlos's picture

right click tab tab enter or tab tab tab enter if you don't like his name.

MontgomeryScott's picture

I can't, either, so I upvoted YOU instead.

rbg81's picture

It's almost like Obama WANTS the petro-dollar to die.  He likely does.  Deep down, he hates America more than just about anybody--at least White America.

InjectTheVenom's picture

yup.  CLOWARD.PIVEN.STRATEGY.   (google it if not familiar)

BigJim's picture

Oh FFS, what Obama wants is about as relevant to the plot of this story as the dermatitis on Jim Henson's hand was to Kermit's love for Miss Piggy.

pcrs's picture

You can't repeat the same trick twice anyway. Parties are prepared for this now. Sovjet union was like killing an already dead horse. Oil market is also bigger and Saudis have less spare capacity.

It might be that the western rulers kill their own economies. That will maybe get oil down if Asia can be dragged along.

Amerikan Patriot's picture

The only reason the US is further in debt than Russia is because no one will lend to the Russians, except at punitive rates.  Why?  Because Russia defaulted on and devalued the ruble in 1998 and has a poor debt repayment record.  Just recently Russia floated some bonds and had to pay almost 10% to get them sold.  With Russian energy costing less and less with each passing week, Russia's deficit will continue to rise.  It's going to be a long winter for Europe, but an even longer one for Russia.

rocker's picture

Never thought about it that way. Your right. In the end, they will be better off for it though. We, (the U.S.) will not.

Our devaluation will start as interest rates rise. Until then, it is a bubble of other asset prices like stocks until the FED stops printing and monetizing all that debt. 

jeff montanye's picture

saudi arabia has more oil than the u.s. has gold but selling either cheap is really not an advantage in the long run.

however in the short run it may suggest to russia to buy a few score million dollars worth of silver futures and stand for delivery.  just to see what happens.  cheaper and arguably safer than sinking tankers or bombing oil fields.

layman_please's picture

will never happen. putin is welcomed to make war with the west, but even he knows not to fuck with the overlords - the bankers.

world war is stimulus for the economies, while another financial meltdown is good for nobody, not even for russia.

 

some things are just off-limits. it's all kabuki, if you haven't noticed yet.

Anusocracy's picture

You're missing the fact that banksters are not a uniform group. Same as with mafia bosses.

For the most part they share Keynesian beliefs, but not necessarily political goals.

layman_please's picture

of course they are not uniform group but don't forget that the system (ponzi) that enables them to thrive is same for them all. silver and gold is their kryptonite. they are still the bankers for god sake, regardless of their political objectives.

and with bankers i'm referring to 'international' or 'merchant bankers according to carroll quigley, not to dimon, blankfein et al. they are as insignificant as obama.

WTFRLY's picture

4000 Ebola deaths, US troops in Liberia, Sierra Leone burial teams, NYC plane cleaners strike

http://wtfrly.com/2014/10/10/4000-ebola-deaths-us-troops-liberia-sierra-...

Oliver Klozoff's picture

+1 for the Bernie X reference.

44magnum's picture

Where can i get a bathrobe like the ones you guys wear?

MontgomeryScott's picture

'Tom Tomorrow' was a cartoon theme in 'High Times' magazine. 'Zippy The Pinhead' was another one. This one is the ZIP. Head shops in Hermosa Beach have been all but shut down, so good luck with that 'bathrobe' request. I miss the freedom to walk in and buy 'Glass Head' bongs along with old-school dirty magazines from a vendor who is there to provide a need; free of 'government' intervention.

bugs_'s picture

need twitter account for this awesome meme srlsy

Kirk2NCC1701's picture

When someone -- even Tyler -- asks me to "look this way", I automatically start looking all around me.  I've seen enough Circus and Magic acts to know better.

Which is why I ask myself:  Quis Bono?  Which country has benefited the most so far from a very specific set of global events?  I.e., which country has benefited the most from Manipulated/Suppressed prices for Commodities, PM and Oil?  Which country has benefited the most from Russian sanctions?  Lemme think... cheap, cheap, cheap prices for commodities, PM and energy that a large population needs. Who could that be?

A:  China.  China.  CHINA.  I'd include India also, but that is more of a lucky coincidence for them, as they have little to no political or economic pull vis-a-vis the EU or the US. 

The US is driving Russia (and their resources and Mil tech) into the Chinese arms, and lets them buy oil, gas and PM at the proverbial Blue Light Special for quite some time now.  Of course the US does nothing that those "doing God's work" at GS don't want them to do.  Which tells me that GS is already deep, deep, deep into the Chinese system, so they can ride that gravy train also.  They're getting rich off America and China.  As are their brothers/cousins in Tel Aviv.  The Israeli Mafia isn't just running the West, they are digging and worming their way into the Chinese system, and doing their best to topple the intransigent "Putin & The Russians".

wrs1's picture

No.  Didn't you read the article, our fucking govt is allowing them to dump oil at below production prices into our market.  

The Blank Stare's picture

When Shinzo Abe got the message, he called for a party! Best buddies Koroda and the the gang eating sushi off a naked woman drinking shochu and singing Elvis songs mocking Koizumi. By the end of the party Abe was wearing his Depends on his head. His last words before passing out was "Control-P"

oudinot's picture

You are confusing oil  price production prices and national budget figures.

Saudi can produce oil for $8-10 per barrel.

gorillaonyourback's picture

Where is your reference. You can't just pull it out your ass.  Its not proper

oudinot's picture

 

My estimate is pretty close.

If I was PAID to do research I would provide the reference; but I am just participating as an amateur as a balm to my real work- I 'm not going to do the 'reference' work.

Believe me or check it yourself, I don't care.

 

Kayman's picture

oudinot

The marginal cost of production is maybe $5 to $25 per barrel for almost all oil.  It is the fixed investment costs that make up the rest. In the Middle East- each country's national expenditures must be carried in the cost of oil, since nearly every ME oil producer has limited alternative revenues.

Even the oil sands have marginal costs of less than $20 per barrel. It is the huge fixed costs of setting up (sunk costs) that make total costs so high.

K

oudinot's picture

Look, i've worked in the industry, you don't know what you are talking about.

Saudi oil comes out pressurised, oil in Canadain tar sands  need to be mined or steamed out which costs much, much more.

Saudi costs per barrel: $8-10; average [price in Canadian tar sands (depends on how new the equipment is for capital costs ) is about $62-$70 per barrel.

US fracking is around $70-$80 per barrrel.