Cheap Oil and Geopolitics

While it cannot be proved, the current OPEC decision to sustain current production levels and thus drive the price of oil down even further causes one to wonder...

Cui Bono? To whose benefit?

First the Saudis...

Driving down oil prices will hurt the newly developed oil markets. With the spike in prices in recent years we've seen the development of the Tar Sands in Canada and a huge boom within the United States.

I live in one of these areas. The oil here is top quality but the wells have never been high quantity producers. When the prices dropped in the 1980's and 1990's the local small-scale drilling industry all but died.

Then during the early 2000's when the prices took off, people started uncapping old wells and drilling for new ones. The new form of Hydraulic Fracturing took off and generated a new Natural Gas industry,  and up in Canada the Tar Sands which hitherto had been considered too costly to develop were opened up.

Now with the drop in prices, the Saudis who can weather the storm with petroleum and cash reserves stand to benefit as these new competitors take a beating. If the low prices go on for long enough, some will go out of business.

Then the Saudis and the USA...

Geopolitically this is crushing an already ailing Venezuela, hurting sanctioned Iran but most of all it is gravely wounding Putin's Russia. They have hit him where it hurts and if this is sustained it will place his rule in jeopardy. If it is deliberate, this is quite literally a declaration of war.

Russia and Iran are of course backing Assad in Syria and the Saudis have been supporting the Sunni rebels and probably indirectly funneling some support to some of the groups that have become ISIS/ISIL.

The low prices will mean a weakening of Assad's support network. As his allies will be forced to turn inward, it will leave him out in the cold.

How long will the prices have to stay low before this begins to happen? That's a much harder question.

There's also Libya. Post-Gaddafi, the country has fallen into chaos and there's a growing ISIS affiliated movement. Low oil prices also hurt these groups as they seek to finance their jihad.

The USA...

The low oil prices are helping the overall US economy as well as helping in terms of geo-strategy.

The one issue that makes me pause is the fact that it's hurting domestic oil production. I'm sure there are some who believe the Obama White House would happily see domestic production harmed in the interest of the bigger picture.

And I'm sure some of them think it's some kind of secret environmental plot. With regard to the latter, I don't think so. The Green movement is not particularly pleased to see this drop in price and a spike in consumption. This does not help their overall goal of seeing the US make a paradigm-shift in terms of energy policy.

I don't see a lot of evidence to suggest Obama has pursued policies that would harm the domestic oil industry either. In fact I think he's been rather supportive of it... Keystone pipeline aside. That issue has in some ways been blown out of proportion due to its symbolism but at the same time I don't hear a lot of news reporting that accurately explains why the Green movement is so against it.

It's not just 'this' pipeline. The issue is the fact that gives a certain air of permanence to and support of the Tar Sands development which has taken the oil industry in a new direction. The process involved in extracting Tar Sands oil creates a great deal more pollution and to transport it through a pipeline is a very different equation than simply pumping crude through a pipe. In addition, by opening up a new era in oil exploration the Green movement believes the petroleum economy will only be perpetuated for another generation or two. Unlike their opponents they believe we've already reached a crisis point or shortly will.

Are the US, the Saudis and some other Gulf states conspiring? Are the low oil prices playing into a larger geo-strategic game?

We probably won't know for sure. It may not even be the White House per se that's involved in the plotting/negotiations. There are other powers within the US government as well as other powers within the US system.

Nevertheless, planned or not, it's changing the way the pieces are arranged on the board and I'm sure the men in high places are rubbing their hands together and planning the next move.

That usually doesn't bode well for innocent people in some part of the world. These men are the kind that start terrible wars.