Saudi Arabia wants to use lower oil prices to pressure Russia to change its stance on Syria, to antagonize Iran, and to force US shale gas out of the market, Pepe Escobar explains the possible blowback

Via RT,

RT: Russia’s economy is surely being hit by the falling oil prices. But what about other oil producers like the OPEC states?

Pepe Escobar: A lot of people are being hurt. There are more or less 20 nations that need oil at least for 50 percent of their budget. Among these nations we’ll find especially a mix of African countries and Persian Gulf countries, that includes Saudi Arabia and Iraq as well, Venezuela and Ecuador. So it’s very complicated, it’s not only to hurt Russia…

RT: Saudi Arabia is one of the OPEC members and it is supposed to collaborate its oil price policy with other members. Why it is acting like this?

PE: OPEC is not a moralistic organization. There has been a lot of speculation about what Saudi Arabia has been doing. In fact, their strategy is still faulty – they want lower oil prices to pressure Russia vis-à-vis Syria, change their stance vis-à-vis Damascus and they want to more or less price shale gas from the US out of the market, and also pressure Iran vis-à-vis what’s going on in the Middle East, the famous Saudi-Iranian antagonism. This is not going to work in the long run because even Saudi Arabia will be in trouble if we have a barrel of oil like it was projected for the first quarter of 2015 between $70 and $80, now it’s a round $86-87. So they will be in trouble as well, their strategy in the long run is going to backfire.

RT: So, how long are these major oil exporting countries going to follow this strategy? When will they think of their own economic interests?

PE: When we look at the breakeven for most of these countries in terms of their state budget – how much they need a barrel of oil to cost if they can more or less even their expenses? When we look at the latest table – which is a composite of indexes from the Economist, Wall Street Journal, Bloomberg, Reuters – Venezuela and Ecuador need oil at $120 a barrel, they are going to be in a deep trouble. Iraq, for instance, needs around $106-116 – they are in trouble. The problem with Iran is that we don’t have very exact figures.

According to these indicators, Iran will need a barrel of oil between $130 and $140. That’s too much because oil is less than 20 percent of Iran’s revenues, so it’s not essential for them. Gas is much more important. In terms of Russia, we know how Russia may [be] hurt because for the State Budget of Russia for 2015 it’s around $100 a barrel. So if we have next year, according to the best projecting so far, between $70 and $80 and maybe even going down to $65-70 in the next few years, all of these countries are going to suffer. But the market is very volatile. In one year from now we could be talking about a completely different situation if we have more demands, especially from China, from the US, from Europe, supposing there is some sort of economic realignment in Europe. So this could change not just in a matter of not only days and weeks or years but very fast.

RT: Why aren’t the OPEC-states reducing the production volumes, like they normally do when prices drop?

PE: There are a lot of back-door consultations among OPEC members at the moment. Sooner or later we can expect less oil in the market, so the prices will go up. Especially, I would say from Venezuela, Ecuador… Iran – they need the revenue, so at the moment they are just starting the market flows. Obviously they have very good customers in Asia, even if they are buying less like China, they still buy Iranian oil. We have to see the US point of view, in fact, because the US doesn’t want very low oil prices to price their shale gas exploration out of the market. So there are going to be counter-moves by many OPEC and non-OPEC players as well.

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2014-10-21/saudis-policy-downplaying-oil-prices-will-backfire-them

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Worries of a Lehman-like financial crisis spreading through Europe and the world has made Greece talk of the market lately. Not to let Greece dominate the spotlight, the U.S. debt ceiling debate is also getting to be as traumatic since a failure to raise the debt ceiling could mean imminent default and credit downgrades for the United States sovereign debt.

In the midst of all these different crises, global markets rise and fall in lockstep with news coming out of Europe and the U.S. The U.S. stock market, after suffering a correction phase since April, snapped back last week, scored the best week in two years, but only to retreat again after the long July 4th weekend. The commodity and currency markets are not immune either, with investors switching back and forth between risk-on and risk-off trades.

In this environment, one has to ask … are there other indicators signaling a global market doomsday?

According to Oxford Analytica, there are 15 “Global Stress Points” ranging from medium to extreme high impact to the entire world. These are listed below ranked by their potential impact by Oxford (see graph). Around 60% of the “stress points” are related to geopolitics, war or unrest, while only about five events could be classified as financial crises.

  1. Dollar Collapse
  2. Taiwan / China Armed Hostility
  3. Israel / Iran Armed Conflict
  4. Mexico State Hollowing
  5. Global Protectionism
  6. Latin America Hydrocarbon Disruption
  7. Iraq State Institutions Collapse
  8. Russia Military Aggression
  9. End of Euro
  10. India / Pakistan War
  11. Pakistan State Collapse
  12. Argentina Sovereign Default 2.0
  13. North Korea Military Conflict
  14. War in North Africa
  15. Lebanon Civil War


(Click to enlarge) Chart Source: Oxford Analytica

For all the rage in the press, the euro’s demise is surprisingly not as big a deal as, for instance, China making good on its 60-year threat to Taiwan, or even a much more mundane “global protectionism.” And I hate to disappoint China Bears, but it looks whatever problems China has, it is not the one that will tank the world like the dollar and the euro.

Since a U.S. dollar collapse is ranked as the greatest risk to the world, and dollar’s fate is largely dependent on if the bond market has faith in Uncle Sam, it might be helpful to add five additional warning signs that the bond market is freaking out (see chart):

  • Prices of bonds maturing start falling (i.e., investors start to demand higher interest rates to hold U.S. government debt).
  • A narrower spread between rates on Treasury bills and other short-term credit or near substitutes, e.g. LIBOR – This would be a sign of waning faith in the U.S. government.
  • A narrower spread between Treasuries and near substitutes – A sign of falling creditworthiness of Uncle Sam.
  • Price spikes in U.S. CDS (credit default swaps, insuring against a U.S. debt default) – According to Markit, the most noticeable movement has occurred in 1-year spreads, which have converged closer to 5-year spreads, and is up about 430% since early April, while 5-year CDS also has risen about 46%.
  • Higher volatility in the U.S. bond market – Another sign of lost confidence from bond investors.


(Click to enlarge) Chart Source: The Washington Post

So far, out of the 20 signs, there’s one that’s sending up a red signal flare – U.S. sovereign debt CDS, which is directly linked to the dollar (see chart above).

The U.S. does not have control over many of the indicators listed here, but at least the No. 1 risk factor — the U.S. dollar — is influenced by the national debt and by the monetary and fiscal policies set by the U.S. government and the Federal Reserve.

The longer the debt ceiling debate lingers, the more likely the bond market would start reacting and demanding higher interest rates. A sovereign credit downgrade as a result of missing the debt ceiling deadline would just translate into billions more in interest payments, piling on to the existing debt.

The United States is not like Iceland or Argentina, resorting to default as retorted by some could mean calamity not only to its citizens, but also to the rest of the world. Unless the government and this Congress get their act together, there will be no bailout, and instead of one lost generation to the Great Recession, there could be multi-generation missed in the next Grand Depression.

EconMatters.com

 

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Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/article/20-warning-signs-global-doomsday

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