excellent story from SMH via the Telegraph, London - more at link If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.
The contract price of US crude oil for delivery in December 2020 is currently $US62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.
The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6 million barrels a day (b/d) into the teeth of the downturn.
Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.
Once oil climbs back to $US60 or even $US55 - since the threshold keeps falling - they (oil shale frackers) will crank up production almost instantly.
OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output. The only constraint is the scale of US reserves that can be extracted at mid-cost, and these may be bigger than originally supposed, not to mention the parallel possibilities in Argentina and Australia, or the possibility for "clean fracking" in China as plasma pulse technology cuts water needs.
The Saudi royal family is leading the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. "Right now, the Saudis have only one thing on their mind and that is the Iranians. They have a very serious problem. Iranian proxies are running Yemen, Syria, Iraq, and Lebanon," said Jim Woolsey, the former head of the US Central Intelligence Agency.
they have also been spending billions exporting theocratic sunni islamism and sharia
Money began to leak out of Saudi Arabia after the Arab Spring, with net capital outflows reaching 8 per cent of GDP annually even before the oil price crash. The country has since been burning through its foreign reserves at a vertiginous pace.
The reserves peaked at $US737 billion in August of 2014. They dropped to $US672 billion in May. At current prices they are falling by at least $US12 billion a month.
perhaps this is why they are setting up halal certification bodies to establish local funding streams on your groceries for when the funds dry up for proselytising in the west
In hindsight, it was a strategic error to hold prices so high, for so long, allowing shale frackers - and the solar industry - to come of age. The genie cannot be put back in the bottle.
in hindsight it was a mistake not to introduce secularism and to eradicate sharia
The Saudis are now trapped. Even if they could do a deal with Russia and orchestrate a cut in output to boost prices - far from clear - they might merely gain a few more years of high income at the cost of bringing forward more shale production later on.
Yet on the current course their reserves may be down to $US200 billion by the end of 2018. The markets will react long before this, seeing the writing on the wall. Capital flight will accelerate.
however the saudis had 50 years of rolled gold to invest and they have bought up our major companies - 49% newsltd, harrods etc etc
The government can slash investment spending for a while - as it did in the mid-1980s - but in the end it must face draconian austerity. It cannot afford to prop up Egypt and maintain an exorbitant political patronage machine across the Sunni world.
Social spending is the glue that holds together a medieval Wahhabi regime at a time of fermenting unrest among the Shia minority of the Eastern Province, pin-prick terrorist attacks from ISIS, and blowback from the invasion of Yemen.
Diplomatic spending is what underpins the Saudi sphere of influence caught in a Middle East version of Europe's Thirty Year War, and still reeling from the after-shocks of a crushed democratic revolt.
democratic revolt? the "oppressed populus" wants theocracy not democracy. they want sharia