Posts Tagged ‘OPEC’

A brief perspective on the geopolitical strategic posturing and amalgamation occurring in real time. Political commentary by Chris Anthony.

 

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The geopolitical reality in the Middle East is changing dramatically.

The impact of the Arab Spring, the retraction of the U.S. military, and diminishing economic influence on the Arab world – as displayed during the Obama Administration – are facts.

The emergence of a Russian-Iranian-Turkish triangle is the new reality. The Western hegemony in the MENA region has ended, and not in a shy way, but with a long list of military conflicts and destabilization.

The first visit of a Saudi king to Russia shows the growing power of Russia in the Middle East. It also shows that not only Arab countries such as Saudi Arabia and the UAE, but also Egypt and Libya, are more likely to consider Moscow as a strategic ally.

King Salman’s visit to Moscow could herald not only several multibillion business deals, but could be the first real step towards a new regional geopolitical and military alliance between OPEC leader Saudi Arabia and Russia.

This cooperation will not only have severe consequences for Western interests but also could partly undermine or reshape the position of OPEC at the same time.

Russian president Vladimir Putin is currently hosting a large Saudi delegation, led by King Salman and supported by Saudi minister of energy Khalid Al Falih.

Moscow’s open attitude to Saudi Arabia—a lifetime Washington ally and strong opponent of the growing Iran power projections in the Arab world—show that Putin understands the current pivotal changes in the Middle East.

U.S. allies Saudi Arabia, Egypt, Turkey and even the UAE, have shown an increased eagerness to develop military and economic relations with Moscow, even if this means dealing with a global power currently supporting their archenemy Iran. Analysts wonder where the current visit of King Salman will really lead to, but all signs are on green for a straightforward Arab-Saudi support for a bigger Russian role in the region, and more in-depth cooperation in oil and gas markets.

In stark contrast to the difficult relationship of the West with the Arab world, Moscow seems to be playing the regional power game at a higher level. It can become an ally or friend to regional adversaries, such as Iran, Turkey, Egypt and now Saudi Arabia. Arab regimes are also willing to discuss cooperation with Russia, even though the country is supporting adversaries in the Syrian and Yemen conflicts and continues to supply arms to the Shi’a regime in Iran.

Investors can expect Russia and Saudi Arabia to sign a multitude of business deals, some of which have already been presented. Moscow and Riyadh will also discuss the still fledgling oil and gas markets, as both nations still heavily depend on hydrocarbon revenues. Arab analysts expect both sides to choose a bilateral strategy to keep oil prices from falling lower. Riyadh and Moscow have the same end goal: a stable oil and gas market, in which demand and supply keep each other in check to push price levels up, but without leaving enough breathing space for new market entrants such as U.S. shale.

Putin and Salman will also discuss the security situation in the Middle East, especially the ongoing Syrian civil war, Iran’s emerging power, and the Libya situation. Until now, the two have supported opposite sides, but Riyadh has realized that its ultimate goal, the removal of Syrian president Assad, is out of reach. To prevent a full-scale Shi’a triangle (Iran-Iraq-Syria-Lebanon), other options are now being sought to quell Tehran’s power surge. Moscow is key in this.

Putin’s unconditional support of the Iranian military onslaught in Iraq and Syria, combined with its support for Hezbollah in Lebanon or Houthis in Yemen, will be discussed and maybe tweaked to give Riyadh room to maneuver into the Russian influence sphere. The verdict on this isn’t yet out, but Riyadh’s move must be seen

in light of ongoing Moscow discussions with Egypt, Libya, Jordan and the UAE.

A growing positive Putin vibe in the Arab world is now clear. The strong leadership of Russia’s new Tsar has become a main point of interest for the (former pro-Western) Arab regimes. The U.S. and its European allies have only shown a diffuse political-military approach to the threats in the MENA region, while even destabilizing historically pro-Western Arab royalties and presidents. Putin’s friendship, however, is being presented as unconditional and long lasting.

Even though geopolitics and military operations in the Middle East now are making up most headlines, the Saudi-Russian rapprochement will also have economic consequences. Riyadh’s leadership of OPEC is still undisputed, as it has shown over the last several years. Saudi Arabia’s eagerness to counter the free-fall of oil prices has been successful, but a much bigger effort is required to bring prices back to a level of between $60-75 per barrel. Russia’s role—as the largest of non-OPEC producers—has been substantial, bringing in not only several emerging producers, but also by putting pressure on its allies Iran, Venezuela and Algeria.

The historically important Moscow-Riyadh cooperation in oil and gas is unprecedented. Without Russia’s support, overall compliance to the OPEC production cut agreement would have been very low, leading to even lower oil prices.

The Saudi-Russian rapprochement could, however, be seen as a threat by the West and OPEC itself. Western influence in the region has waned since the end of the 1990s, not only due to the peace dividend of NATO, but especially because OECD countries are moving away from oil. Saudi Arabia had to find new markets, which happened with China and India. The Saudi future is no longer based on Western customers or support, but lies in Asia and other emerging regions. The FSU region has also popped up on Saudi screens. Investment opportunities, combined with geopolitical support and military interests, are readily available in Russia and its satellite states.

For OPEC, the Moscow-Riyadh love affair could also mean a threat. Throughout OPEC’s history, Riyadh has been the main power broker in the oil cartel, pushing forward price and production strategies; most of the time this was done in close cooperation with all the other members, most of them Arab allies. This changed dramatically after Saudi Arabia and Russia agreed to cooperate in global oil markets. Through the emergence of this OPEC/ non-OPEC cooperation, Moscow and Riyadh have grown closer than expected. The two countries now decide the future of global oil markets before they discuss it with some of the other main players like UAE, Iran, Algeria and Nigeria. King Salman’s visit is seen as another step toward a more in-depth cooperation in oil and gas related issues.

Besides global oil market cooperation, Saudi Arabia is and will become more interested to invest in natural gas development, not only to have an interest in Russia’s gas future but also to bring in Russian technology, investment and LNG to the Kingdom.

At the same time, media sources are stating that Saudi Arabia is NOT asking Russia to take part in the long-awaited Aramco IPO in 2018. Russian individual investors and financial institutions, however, are expected to take an interest.

Putin understands not only Russian chess tactics but also the Arab “Tawila” approach. Saudi Crown Prince Mohammad bin Salman already will prepare his Tawila strategy, putting enough stones on the table to ensure his successful end game. MBS, currently de-facto ruler of the Kingdom, is targeting a full house—Russian cooperation in energy, defense and investments—while softening Moscow’s 100% percent support of the Shi’a archenemy Iran.

For both sides, Moscow and Riyadh, the current constellation presents a win-win situation. Moscow can reach its ultimate goal in the Middle East: to become the main power broker and knock the US from the pedestal. For Riyadh, the option to counter the Iranian threat, while also bolstering its own economy and hydrocarbon future, is now within reach.

King Salman’s trip could go down in history as the point of no return for the West. Pictures of Russian President Vladimir Putin and King Salman of Saudi Arabia could replace historic pictures of King Saud and U.S. President Roosevelt (Bitter Lake, 1945). In a few years, King-to-be Crown Prince Mohammad bin Salman might tell his children that this was one of the pillars that changed not only the Middle East but also supported his Vision 2030 plan of becoming a bridge between the old (West) and the new (Russia-Asia).

Oil prices could be facing a significant jolt after Federal Chair Janet Yellen, in her annual speech at the Jackson Hole economic symposium in Wyoming, said that the case to increase interest rates had strengthened. The extent of the jolt that may be felt is far from certain however.

Due to the quotations of crude oil in U.S. dollars, there is often a bind between the fate of the greenback and the costs of oil per barrel, as the balance of oil trade and the effect on market psychology can be hugely influential.

There are, however, other significant factors in the oil price equation, including high production rates and inventories.

Spencer Welch, director of downstream energy consulting at IHS Markit explained that:

 “a rate hike would strengthen the U.S. dollar, which would make oil more expensive globally, so this would tend to reduce oil demand slightly, but it takes a while for this effect to play out, and would therefore likely reduce oil market price.”

“By how much? That depends on the size of the interest rate increase. It is likely to be less than $1/bbl in oil price impact, but that is not based on historical statistics.”

Different nations Welch believes, are effected by a rate rise in varying ways, depending if they are net exporters or importers of oil.

Importers are more likely to be hurt by a rate rise as oil would become more expensive due to a rising dollar, net exporters of oil would benefit as a result of selling oil in dollars, with the dollar being stronger.

“I would say yes, rate rise impacts are smaller compared to other oil market impacts, such as declining U.S. oil production, high oil inventories, high oil production rates in other countries, including production in Saudi Arabia, Russia, Iraq, Iran, and in the North Sea.” Spencer Welch continued.

A recent paper by Morgan Stanley highlighted that the correlation between trade weighted U.S. dollars and oil was high until May this year, when large supply outages and then product market concerns subsequently brought oil back into focus, due to the increased market anxiety.

The investment bank also points out that in July, the oil and dollar price association was disrupted by fears of product overhang, although recently there are signs that the correlation is returning.

If this relationship stays firm, then Morgan Stanley believes that this could help support oil prices in the near term. Overall the bank’s forex team sees the dollar weakening further, before resuming an upwards trajectory next year.

The paper also points to how global market factors can have a huge impact on oil prices, outweighing the influence of a rising or falling dollar, as evidenced by the influence of the upcoming OPEC meeting taking place alongside the International Energy Forum in Algiers.

Any production deal to combat oversupply in the market must engage with Iran’s conditional demands, that OPEC will have to agree to allow it to return to its pre-sanction production levels.

Morgan Stanley also said that even if the meeting is a successful one, an OPEC freeze would likely be a short term positive but a medium term negative for oil prices.

Other factors such as the United States’ burgeoning production of shale oil has also been mentioned as a game changer for the oil price and dollar relationship, as argued by Goldman Sachs’ Jeffrey Currie in a study published in 2014.

He said that in 2008 the U.S. was importing on a net basis nearly 12 million barrels per day of oil and products. Today, owing largely to shale technology, that number is less than 5 million barrels per day, disturbing the oil price and dollar correlation.

According to the United States Energy Information Administration, the volume of shale oil production peaked at 4.5 million barrels of oil per day in early 2015, before falling to 4 million a day this year.

It’s uncertain by how big a margin shale oil production has transformed the oil price and dollar relationship, as the United States remains a net importer of oil.

Russia Energy Minister Alexander Novak said that Moscow is cooperating through consultations on the oil market with OPEC and non-OPEC countries.

An oil rig

Russia is ready to discuss the possibility of reaching an oil output freeze deal with Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries to further stabilize the global oil market, Russia Energy Minister Alexander Novak said Monday.

“The idea of freezing oil output, which was discussed in April, has played its role in stabilizing the market. The speculators saw that producers can agree. The door for continuing talks remains open in case such a need emerges,” Novak said in an interview with the international Asharq Al-Awsat newspaper.

Earlier in August, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources Khalid Falih said that the country may coordinate with OPEC and non-cartel exporters to rebalance the market. Reports have also emerged that Venezuela, Ecuador and Kuwait may resume talks on setting new limits on oil production in September at the International Energy Forum (IEF) in Algeria.

“We are cooperating through consultations on the oil market with OPEC and non-OPEC countries. We intend to continue dialogue on stabilizing the markets and are ready for the broadest coordination on the matter, as well as working out joint measures on stabilizing world oil markets given that these measures do not have a short-term character,” Novak said.

Russia is also ready to cooperate with OPEC on a range of common issues, as well as using the reliable OPEC-Russia Energy Dialogue mechanism, he added.In April, major oil-producing countries failed to reach an agreement in the Qatari capital of Doha to freeze output at then-levels for the rest of the year in order to boost prices from historic lows of $30-45 per barrel they have hovered around since January. Riyadh, which had previously said that it would freeze output only if Iran followed suit, cited Tehran’s absence from the talks as reason for not supporting an output freeze.

By Darius Shahtahmasebi

Corporate media regularly attempts to present Bashar al-Assad’s government in Syria as solely responsible for the ongoing conflict in the region. The media does report on events that contradict this narrative — albeit sparingly — but taken together, these underreported details shine a new light on the conflict.

10: Bashar al-Assad has a higher approval rating than Barack Obama

Despite Obama’s claims Assad is illegitimate and must step down, the fact remains that since the conflict erupted in 2011, Assad has held the majority support of his people. The elections in 2014 – which Assad won by a landslide with international observers claiming no violations – is a testament to the fact that although Assad has been accused of serious human rights violations, he continues to remain reasonably popular with the Syrian people.

Obama, on the other hand, won elections in 2012 with a voter turnout of a mere 53.6 percent of the American public; only 129.1 million total were votes cast. This means approximately 189.8 million American people did not vote for Obama. His current approval rating sits at about 50 percent.

9: The “moderate” opposition has been hijacked

There is no longer such a thing as “moderate” opposition in Syria – if there ever was. The so-called Western-backed Free Syrian Army (FSA) has been dominated by extremists for years. The U.S. has known this yet has continued to support the Syrian opposition, despite the fact the New York Times reported in 2012 that the majority of weapons being sent to Syria have been ending up in the hands of jihadists. A classified DIA report predicted the rise of ISIS in 2012, stating:

“If the situation unravels, there is the possibility of establishing a declared or undeclared Salafist principality in eastern Syria… and this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime.”

Further, an FSA commander went on record not only to admit his fighters regularly conduct joint operations with al-Nusra (al-Qaeda in Syria), but also that he would like to see Syria ruled by Sharia law.

Apparently, moderate can also mean “al-Qaeda affiliated fanatic.”

8: Assad never used chemical weapons on his own people

A U.N. investigation into the first major chemical weapons attack committed in early 2013 — an atrocity the West immediately pinned on Assad — concluded the evidence suggested the attack was more likely committed by the Syrian opposition. A subsequent U.N. investigation into the August 2013 attack never laid blame on anyone, including Assad’s forces. In December 2013, Pulitzer prize-winning journalist Seymour Hersh released an article highlighting deficiencies in the way the situation was handled:

“In the months before the attack, the American intelligence agencies produced a series of highly classified reports…citing evidence that the al-Nusra Front, a jihadi group affiliated with al-Qaida, had mastered the mechanics of creating sarin and was capable of manufacturing it in quantity. When the attack occurred al-Nusra should have been a suspect, but the administration cherry-picked intelligence to justify a strike against Assad.”

7: Toppling the Syrian regime was part of a plan adopted shortly after 9/11

According to a memo disclosed by 4-star General Wesley Clark, shortly after 9/11, the Pentagon adopted a plan to topple the governments of seven countries within five years. The countries were Iraq, Lebanon, Libya, Somalia, Sudan, Syria, and Iran.

As we know, Iraq was invaded in 2003. American ally Israel tried its hand at taking out Lebanon in 2006. Libya was destroyed in 2011. Prior to this intervention, Libya had the highest standard of living of any country in Africa. In 2015, alone, it dropped 27 places on the U.N. Human Development Index rating. U.S. drones fly over Somalia, U.S. troops are stationed in South Sudan — Sudan was partitioned following a brutal civil war — and Syria has been the scene of a deadly war since 2011. This leaves only Iran, which is discussed below.

6: Iran and Syria have a mutual defense agreement

Since 2005, Iran and Syria have been bound by a mutual defense agreement. The Iranian government has shown they intend to fully honor this agreement and has provided the Syrian regime with all manner of support, including troops, a $1 billion credit line, training, and advisement. What makes this conflict even more dangerous, however, is the fact Russia and China have sided with Iran and Syria, stating openly they will not tolerate any attack on Iran. Russia’s military intervention in Syria in recent months proves these are not idle threats – they have put their money where their mouth is.

Iran has been in the crosshairs of the U.S. foreign policy establishment for some time now. George W. Bush failed to generate the support needed to attack Iran during his time in office — though not for lack of trying — and since 2012, sanctions have been the go-to mantra. By attacking and destabilizing Iran’s most important ally in the region, the powers that be can undermine Iranian attempts to spread its influence in the region, ultimately further weakening Iran.

5: Former Apple CEO is the son of a Syrian refugee

The late Steve Jobs, founder of Apple, was the son of a Syrian who moved to the United States in the 1950s. This is particularly amusing given the amount of xenophobia, Islamophobia, racism and hatred refugees and migrants seem to have inspired — even from aspiring presidents. Will a President Donald Trump create the conditions in which future technological pioneers may never reach the United States? His rhetoric seems to indicate as much.

4: ISIS arose out of the U.S. invasion of Iraq, not the Syrian conflict

ISIS was formerly known as al-Qaeda in Iraq, which rose to prominence following the U.S.-U.K. led invasion of Iraq in 2003. It is well-known that there was no tangible al-Qaeda presence in Iraq until after the invasion, and there is a reason for this. When Paul Bremer was given the role of Presidential Envoy to Iraq in May 2003, he dissolved the police and military. Bremer fired close to 400,000 former servicemen, including high-ranking military officials who fought in the Iran-Iraq war in the 1980s. These generals now hold senior ranking positions within ISIS. If it weren’t for the United States’ actions, ISIS likely wouldn’t exist.

ISIS was previously known by the U.S. security establishment as al-Qaeda in Iraq (AQI), but these fighters ultimately became central to Western regime change agendas in Libya and Syria. When the various Iraqi and Syrian al-Qaeda-affiliated groups merged on the Syrian border in 2014, we were left with the fully-fledged terror group we face today.

3: Turkey, Qatar, and Saudi Arabia wanted to build a pipeline through Syria, but Assad rejected it

In 2009, Qatar proposed a pipeline to run through Syria and Turkey to export Saudi gas. Assad rejected the proposal and instead formed an agreement with Iran and Iraq to construct a pipeline to the European market that would cut Turkey, Saudi Arabia, and Qatar out of the route entirely. Since, Turkey, Qatar, and Saudi Arabia have been staunch backers of the opposition seeking to topple Assad. Collectively, they have invested billions of dollars, lent weapons, encouraged the spread of fanatical ideology, and helped smuggle fighters across their borders.

The Iran-Iraq pipeline will strengthen Iranian influence in the region and undermine their rival, Saudi Arabia — the other main OPEC producer. Given the ability to transport gas to Europe without going through Washington’s allies, Iran will hold the upper-hand and will be able to negotiate agreements that exclude the U.S. dollar completely.

2: Leaked phone calls show Turkey provides ISIS fighters with expensive medical care

Turkey’s support for hardline Islamists fighting the Syrian regime is extensive. In fact, jihadists regularly refer to the Turkish border as the “gateway to Jihad.” In May 2016, reports started emerging of Turkey going so far as to provide ISIS fighters with expensive medical treatment.

Turkey is a member of NATO. Let that sink in for a moment.

1: Western media’s main source for the conflict is a T-shirt shop in Coventry, England

This is not a joke. If you follow the news, you most probably have heard the mainstream media quote an entity grandiosely called the “Syrian Observatory for Human Rights” (SOHR). This so-called “observatory” is run by one man in his home in Coventry, England — thousands of miles away from the Syrian conflict — yet is quoted by most respected Western media outlets (BBC, Reuters, The Guardian, and International Business Times, for example). His credentials include his ownership of a T-shirt shop just down the road, as well as being a notorious dissident against the current Syrian president.

***

Despite the fact much of the information in this article comes from mainstream outlets, those circulating it refuse to put all of the storylines together to give the public an accurate picture of what is going on in Syria.

Assad may be brutal — and should face trial for allegations of widespread human rights abuses — but this fact alone does not make the other circumstances untrue or irrelevant. People have the right to be properly informed before they allow themselves to be led down the road of more war in the Middle East, and consequently, more terror attacks and potential conflicts with Russia and China.

Russia is on track to set a new record in crude oil exports this year, and Iran is boosting exports to Europe, intensifying competition on the continent, which is a key market for both countries.

As Oilprice.com noted at the beginning of June, Russia has surprised analysts time over time by keeping oil production at near-record levels throughout the rock bottom of the oil bust.

Not only has Russia managed to keep output at high levels, it has actively increased its exports to China and has managed to maintain its market share in other key markets.

Russian Energy Ministry figures reveal a 4.9 percent increase in exports to 5.55 million barrels a day during the first half of 2016 when compared to the same period last year.

In June, the country’s output rose 1.14 percent from a year earlier, with total crude export figures on the rise during every month since summer 2014.

“If production remains steady, then it will likely be a record year for exports,” said Christopher Haines, head of oil and gas at BMI Research told Bloomberg. “This should mean competition is strong, especially with Iran sending more oil into southern Europe.”

Russia – also known as the world’s most prolific energy producer – said earlier this year that it would fund a spike in crude production after members of the Organization of Petroleum Exporting Countries (OPEC) failed to agree on a plan to reduce the existing glut in oil and gas markets.

Iran has also been increasing production as it aims to regain market share after international sanctions against it were lifted earlier this year.

The year 2012 saw Europe banning Iranian oil as a political reaction to the country’s secretive nuclear program. In the years that followed, Russian Urals crude, a blend similar to Iran’s formula, became a popular alternative.

Last year, the European Council on Foreign Relations released a report outlining new energy sources for Europe. The document called Russia an “unreliable partner” and suggested several Central European and Middle Eastern countries – including Iran and Iraq – as possible suppliers in the near future, albeit with logistical caveats.

“There are also infrastructural constraints, such as the geographical distribution of resources in Iran relative to its consumption, as well as the lack of production and export infrastructure,” it said. “Iran’s gas resources (for example, the South Pars field) are in the south. Therefore, substantial investment would be needed to bring gas to the northwest to tap into Europe’s Southern Gas Corridor.”

The European Union might be skeptical about increasing its crude supply from Russia, but China seems to be keen on receiving more Russian Crude. Russian oil exports to this part of the world have doubled year over year last April at the expense of Saudi Arabia and Iran.

Riyadh appears to be falling victim to a crisis of their own making as their bid to undercut the world’s oil market has left the country’s economy in shambles.

Economic data suggests that Saudi Arabia may finally be feeling the effects of the oil war they waged against the world sending prices barreling into crisis levels in February below $30 per barrel and well below the country’s own breakeven price of roughly $65 per barrel.

Oil rig

In the first quarter of 2016, real GDP growth decelerated to 1.5% year on year well below last year’s first quarter figure of 3.3% growth signaling that the government’s austerity measures imposed to withstand the shock they instilled in oil prices may soon trigger a recession in the Kingdom.

With oil prices recovering, Saudi Arabia’s struggles are a promising sign for energy-rich countries around the world that may soon be able to look forward to a surge in oil prices if Riyadh starts to pull supply offline.

In recent months, Saudi Arabia has pledged to continue over suturing the oil market even if prices once again cascade down to February levels with the country already increasing oil output 20% to 10.5 million barrels of oil per day and with the Crown Prince calling for the country to supply 11.5 million barrels per day by the end of 2016 and an unprecedented 12.5 million barrels daily by early 2017.

Saudi Arabia reasoned that in the long term it was more important to protect market share from regional adversary Iran and to bankrupt US shale oil drillers, but with the country’s economy starting to barrel off a cliff of their own making the House of Saud may be forced to take a step back.

The news may ultimately avert catastrophic damage to countries like Venezuela, Algeria and Libya whose economies are heavily dependent on oil, but who lack the requisite access to capital markets to weather the collapse in the commodity’s price.

It may also prevent a doomsday scenario, as suggested recently by oil analyst A. Gary Shilling who predicted that world oil markets could crash down to $10 per barrel of oil saying that the market’s recovery is short lived and based heavily on lost Canadian output due to the oil sands fire in Fort McMurray.