​News from WSJ on Saudi Arabia, America’s ex-ally – yes, ex!

Below is our translation of an analysis from RIA Novosti on how Russia has seized control of OPEC. Commentary and notes in [brackets] are by Vince Dhimos.
 
We had posted previously about the sudden shift in the Saudis’ attitude toward their erstwhile Washington masters. Two items rocked the financial world:

1) Saudi energy minister Khalid al-Fatih had warned the US not to keep on sanctioning Russia
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2) Unnamed Saudi officials had told Reuters that the Saudis were prepared to use the nuclear option, ie, start charging non-dollar currencies for their oil, should Congress pass the NOPEC bill curtailing the decision-making power of OPEC. As we mentioned in that article, such a move on their part would have the potential to turn the financial world upside down, causing a major slide in the US dollar and stymying investment in Treasuries. The fact that they would even dare to mention this already suggested that a geopolitical plate shift was already in the works.
 
QUOTE FROM THE TRANSLATION:
 
“Now it’s clear that with the new ally, Russia, Saudi Arabia no longer belongs to Washington."
 
Please note: The above quote is not from the Russian author of our article but is quoted from WSJ. When WSJ writes something like this, it is time to sit up and take notice!
 
It is now just a matter of time. Now might be a good time to invest in precious metals or perhaps even rouble-denominated bonds. [not advice but it is what I would do if I had money]
 
Finally, the author mentions US shale oil. I had posted a while back a critical analysis on the US economy, and I pointed out that shale oil was turning out to be a bad bet. I had said that the cost of extracting gas and oil from shale was high because it required fracking. Sure enough, reports came in months later that shale oil producers were paring back their investments due to lacklustre results.
 
Now oddly, Trump keeps saying he wants low oil prices. Perhaps he is being sly. If he really wants to encourage shale oil production, he could not sincerely want low oil prices. Perhaps what he really wants is to tell his gullible constituents that he wants low oil prices so they’ll think he is on the consumer’s side. He must know that shale drillers need high prices. At any rate, Putin and MBS are for the moment, giving him what he needs if not what he wants since they are targeting high prices by cutting back production.
 
Now if I were Putin, I think I would be more than disgruntled with the US, including Trump, for its anti-Russian moves, ie, sanctions, tariffs, the near-bankrupting of the aluminium company Rusal, and the sanctions on Venezuela and threats of war against that country as well as the total lack of cooperation on Syria and the threat of war on Iran, the support for Israel’s illegal annexation of the occupied Golan Heights, etc.
 
If Putin were vindictive (he may be above vindictiveness, of course), I think he might play a little cat and mouse game in tandem with the Saudis. That is, he would keep the crude prices at a high enough level to attract investments in shale oil, and when enough US companies had invested again in expensive equipment and exploration, he would spring the trap, allowing prices to fall just to levels that are unprofitable to the US oil companies but acceptable to OPEC (because for the most part, their extraction costs are lower), and he would leave the prices at that level just long enough to make them lose money and curtail their investments. This would seriously hurt US shale oil production.
 
But even if Washington richly deserves a come-uppance for the shabby way it has treated Russia, could Putin be that vindictive?
 
On the other hand, perhaps this diabolical scheme will be his solution to the dilemma posed as follows:
 
QUOTE from below:
 
“According to Minister of Finance and Deputy Prime Minister Anton Siluanov, Russia does not intend to cede the market to American shale companies. "There is a dilemma: we either continue to lose the market occupied by the Americans, or withdraw from the OPEC + agreement," Siluanov said.”
 
BEGIN TRANSLATION:
 
Rescue and control: US tells how Russia controls OPEC
 
April 19, 2019
 
MOSCOW, April 19 - RIA Novosti, Natalia Dembinskaya. In December, OPEC was practically on the verge of collapse: cartel participants could not agree on production cuts, although in just a month and a half oil quotations fell by 30 percent. Russia played a decisive role in resolving this crisis, and Moscow not only strengthened ties with the cartel, but also gained unlimited influence on the world oil market, The Wall Street Journal writes. RIA Novosti tells how it was possible.
 
Decisive word
 
By December, the situation on the oil market had worsened to the limit. Prices had fallen by almost 30 percent, as investors reacted to a record increase in the volume of commercial stocks of crude in the United States and an actual increase in production by OPEC countries. The situation could be saved only by an agreement on production cuts, but not everyone was willing.
 
Iran, Venezuela and Libya rejected the agreement. Qatar actually announced its withdrawal from OPEC, explaining that it wanted to focus on LNG production.
 
However, according to The Wall Street Journal (WSJ), citing high-ranking Qatari officials, the discontent of the major exporter of natural gas was due to the fact that the cartel "had become what the Saudi prince Mohammed and his friend Vladimir Putin wanted it to be."
 
At the same time, Donald Trump was pressuring Saudi Arabia to keep prices low. The fact that, under pressure from the Saudis, OPEC decided not to cut production, seemed to be a reality. Accordingly, the market was threatened with oversupply, and prices risked falling to the lows of 2014.
 
According to WSJ, Al-Falih, Saudi Arabia’s energy minister, asked Iran’s oil minister, Bijan Zangeneheh, to reduce production, and in response the latter accused the Saudis of trying to seize Iran’s oil market share.
 
The organization of oil exporting countries was on the verge of collapse. As the newspaper notes, Russia saved OPEC, although it is not a member of the cartel.
 
According to WSJ, "President Vladimir Putin agreed to cut production in conjunction with OPEC, but on condition that Iran be allowed to keep its production at the same level.” As a result, Iran, Venezuela and Libya were allowed not to reduce production, since Washington had imposed sanctions against Iran and Venezuela, and Libya faced a new round of civil war.
 
At the December meeting, the cartel actually recorded what Russia and Saudi Arabia agreed upon. OPEC + reduced production by 1.2 million barrels per day: 800,000 by OPEC itself, and 400,000 by countries that are not part of the cartel.
 
"Now Putin is able to significantly influence the Middle East and the entire global oil market amounting to $1.7 trillion," points out the WSJ.
 
Independent experts confirm the findings of the WSJ. As stated to the periodical by the global head of commodity strategy of RBC Capital Markets, Helima Croft, "Russia actually acted as the attending physician of OPEC."
 
Forming a relationship
 
However, observers note that it is not so much about “therapy,” but about cartel management, and OPEC+ is increasingly affecting the world market. Russia and Saudi Arabia - the key parties to the OPEC+ agreement and the largest oil-producing countries - almost completely determine the decisions of the organization: whatever Moscow agrees to with Riyadh will be done.
 
Analysts say the main weakness of OPEC+ is the lack of a formal agreement on cooperation and compliance with commitments. Therefore, the next step for Russia and Saudi Arabia could be a new global alliance of the largest oil exporters, which will replace OPEC. The question of reforming the cartel is expected to be the focus of the May OPEC summit.
 
"For decades, the United States perceived Saudi Arabia as one of the closest geopolitical allies, an important stabilizing force in the Middle East. They sold weapons to Riyadh. In response, Washington expected stable oil supplies to world markets to avoid price spikes and damage to the economy, writes WSJ. “Now it’s clear that with the new ally, Russia, Saudi Arabia no longer belongs to Washington."
 
Anticipating a warning to the Saudis against rapprochement with Moscow, Congress is preparing to discuss the proposed No Oil Producing and Exporting Cartels (NOPEC) Act, approved in February by the legal committee of the House of Representatives. This document declares as illegal any decisions of OPEC, as well as any joint actions of the governments of other countries (except the USA), aimed at restricting oil production and regulating the prices of crude.
 
But the Saudis do not give in to pressure: Riyadh warned Washington that if the bill is passed, Saudi Arabia will refuse to pay in dollars when selling oil, thereby undermining the international position of the American currency.
 
Moscow, for its part, is already pointing out to the cartel that it may be time to halt production cuts. According to the Minister of Finance and Deputy Prime Minister Anton Siluanov, Russia does not intend to cede the market to American shale companies. "There is a dilemma: we either continue to lose the market occupied by the Americans, or withdraw from the OPEC+ agreement," Siluanov said.
 
END TRANSLATION

Relevant

The US military is a mercenary force in the hire of the Saudi dictatorship
http://www.newsilkstrategies.com/news--analysis/the-us-military-is-a-mercenary-force-in-the-hire-of-the-saudi-dictatorship
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Israel and Saudi jioned at the hip and writing failed US policies
http://www.newsilkstrategies.com/news--analysis/israel-and-saudi-joined-at-the-hip-and-writing-failed-us-policies