The Doha summit this past weekend that was supposed to enshrine a cut in oil production by OPEC, in tandem with Russia -- it was practically a done deal -- ended up literally in the dust.
The City of London -- via the FT -- wants to convey the impression to global public opinion that it all boiled down to a dispute between Prince Mohammed bin Salman -- the conductor of the illegal war on Yemen -- and Saudi Oil Minister Ali Al-Naimi. The son of -- ailing -- King Salman has been dubbed "the unpredictable new voice of the kingdom's energy policy."
Yet the true story, according to a financial source with very close links to the House of Saud, is that "the United States threatened the Prince that night with the most dire consequences if he did not back down on the oil price freeze."
So -- predictably -- this goes way beyond an internal Saudi matter, or the Prince's "erratic" behavior, even as the House of Saud is indeed racked by multiple instances of fear and paranoia, as I analysed here.
As the source explains, an oil production cut would have "hindered the US goal of bankrupting Russia via an oil price war, which is what this is all about. Even the Prince is not that erratic."
Iran had made it more than clear that after the lifting of sanctions it does not have any reason to embark on a production cut. On the contrary; oil contributes to 23% of Iran's GDP. But as far as the House of Saud is concerned -- feeling the pain of a budget deficit of $98 billion in 2015 -- a moderate cut was feasible, along with most of OPEC and Russia, as Al-Naimi had promised.Another key variable must also be taken into account. Not only the whole saga goes way beyond an internal Saudi dispute; no matter what Washington does, the oil price has not crashed as expected. This would indicate that the global surplus of oil has been largely sopped up by falling supply and increasing demand.
As a GCC-based oil market source reveals, "have you noticed how much attention Kerry and Obama have been giving Saudi Arabia out of all proportion to the past to keep that oil price down? Yet WTI is up and holding over $40 a barrel. That's because oil demand and supply is tightening." The oil market source notes, "oil surplus is now probably less than a million barrels a day." So the only way, in the short to medium term, is up.
Blowback from His Master's Voice?
The House of Saud, by flooding the market with oil, believed it could accomplish three major feats.
1) Kill off competition -- from Iran to the US shale oil industry.
2) Prevent the competition from stealing market share with key energy customer China.
3) Inflict serious damage to the Russian economy. Now it's blowback time -- as it could come from none other than His Master's Voice.
The heart of the whole matter is that Washington has been threatening Riyadh to freeze Saudi assets all across the spectrum if the House of Saud does not "cooperate" in the oil price war against Russia.
That reached the tipping point of the Saudis shaking the entire turbo-capitalist financial universe by issuing their own counter threat; the so-called $750 billion response.