You can’t help smiling sometimes, if it were not so serious. We are told that Saudi Arabia, the OPEC leader, vows to maintain oil output even if the price hits $20. That is a really inflammatory statement if ever there was one. Previously the Americans have always looked to Saudi, which produces 12 million barrels per day (mbpd) to calibrate production up or down in order to keep the global price of oil in rough equilibrium. For the first time Saudi/OPEC are defying the US, and instead of limiting oil output they have adopted a new policy of defending the cartel’s market share at all costs. The are angered, rightly so, by the Americans’ point blank refusal to play their own part in limiting oil production, particularly the colossal surge currently underway in US shale oil production. This is the classic capitalist ramp.
As true unrepentant capitalists the Americans expect to maintain their own selfish, greedy interests in maximizing shale profits uninterrupted while expecting the rest of the world to act as good socialists (that’s putting it a bit strongly!) in sacrificing their own interests for the sake of rough global stability. OPEC has now dug in its heels, not of course because they have suddenly adopted socialist instincts (you must be joking), but because they’re now playing exactly the same game as the Americans – pursue your interests regardless and stuff the rest of the world.
This assertion of oil imperial power between the world’s two dominant groups, the US and OPEC, has some interesting knock-on effects across the world, not that that either of the two two camps care a fig about that. First, the 45% fall in the price of Brent crude, down from $115 last June to $60 or below today, will devastate three countries in particular – Iran, Russia and Venezuela. How convenient for the US that they are all major US targets. At a price of $60 or below, it will soon cripple Venezuela. Russia is now entering a full-blown economic crisis because of the collapse of the oil price on which Russia is far too dependent (having failed badly to diversify the economy over the last decade) but also because of Western financial and trade sanctions over Ukraine which are now biting ever deeper, leading to a fall in Russian living standards of 2-5% over the next year or two which is almost unprecedented in its sharpness and suddenness. Iran will probably struggle through, but it will lead again to falling living standards, a hike in inflation, shortages particularly petrol, and quite likely rioting.
The there is the impact on the UK. Much of North Sea oil production will become uneconomic, and fracking at least for a considerable time will be untenable. One cannot help another laugh: Osborne doesn’t care a fig about all the environmental objections, even to the point of allowing shale operators to drill under private property without permission. He has disregarded protesters with contempt. But even Osborne has to bow to the forces of capitalism. It really couldn’t happen to a nicer man.