A missing piece of the puzzle

I’ve been puzzling over the rationale for some recent events…

Exxon has a large contract to develop oil and natural gas resources in the Russia.
This can only go forward if sanctions on Russia are lifted, which seems likely to happen in the near future.

But, there is too much oil and capacity to surge produce more oil and gas on the market. If nothing else, the US has well developed capacity which is idling.
The problem, as it has been for the last few decades, is that Saudi Arabia can squeeze new producers out of the market, by increasing production and sharply dropping prices, for a while, which forces higher costs producers off the market.
Then the Saudis cut back.
Oil prices go up.
Profit.

So… for the Exxon deal to be really worth while, in the medium term, the Saudi capacity would have to be curtailed.
Or some other major producer removed from the market.

That, could of course be arranged, given the national security resources of a major power or two.

But that’d be totally evil.

Comments

  1. #1 Craig Thomas
    January 23, 2017

    So what you’re saying is, nuking Saudi Arabia would solve *two* problems?

  2. #2 Steinn Sigurðsson
    January 23, 2017

    That might be a bit of an overkill…
    And Iran probably ought to be worried, as removing them as producers for a while might do the trick.

    Saudi is more likely to be removed as a player by triggering an internal conflict.
    If I were thinking about the situation and were totally ruthless.

  3. #3 G
    January 24, 2017

    (Speaking as a liberal Democrat who voted for Hillary Clinton.)

    Likely scenarios involve destabilizing one or more Gulf Arab regimes, for example Saudi, causing political and other consequences that lead to a decrease in their own oil production.

    That could easily be accomplished via covert action. The problem is that President Trump has significantly alienated the US Intelligence Community and in particular the CIA, so one of two things is likely: a) CIA can’t mobilize the needed human assets due to low morale, or b) CIA can mobilize those human assets because they see this as an opportunity to prove their value to the Trump administration, winning back Trump’s support for CIA.

    Alternately it could be accomplished by Russia flooding the market with cheap oil for a long enough period of time that the economic consequences in Saudi have the desired destabilizing effect. This route is more likely because a) it does not require CIA participation and b) it makes use of Trump’s existing friendly relationship with the Putin administration in Russia.

    If any of the above are successful, the result is a decrease in Saudi oil output, and eventual loss of production capacity. In case anyone here doesn’t know this, Saudi is highly reliant on water and steam injection into oil fields to drive oil to collecting points for extraction. It is possible that below a certain level of production in any given oil field, this method loses effectiveness and becomes difficult to restart. Trump’s Secretary of State, former Exxon CEO, would have the relevant knowledge to make that judgement call.

    Once Saudi production capacity has been reduced via means that would entail high costs to re-start the lost capacity, Russia raises its price to a profitable level.

    If Trump played this right, one of the outcomes could be sufficient destabilization of Saudi as to enable a more liberal regime to come to power there. If the new regime was favorable toward women’s rights, we liberals would be suitably impressed and most of us would be more than willing to give Trump credit for that outcome (I certainly would; objectivity requires it).

    However there is also a risk that a new regime in Saudi would be even more anti-Western and thus more hard-line across the board. Thus no improvement in women’s rights, and also a strong possibility of increased Saudi support for terrorist acts directed against both Russia and the US.

    This is the sort of thing that calls for substantial all-sources intelligence, analysis, and at least some degree of active measures. Russia will look after its own interests in this area and Putin is highly capable of doing so. The US interests (here and across the board) will be best served if Trump repairs his relationship with the US Intel Community particularly CIA.

  4. #4 jane
    January 24, 2017

    Like, supposing the illegitimate ruler of a major nuclear power had said this week that we should “take the oil” of Muslim countries? Even though that would undoubtedly mean that the local Resistance destroyed or forcibly shut down the oil fields in those countries, and maybe that their supporters bombed Ras Tanura and mined the shipping lane out of the Persian Gulf?

  5. #5 Steinn Sigurdsson
    January 24, 2017

    @jane – inconceivable!

    @G – I don’t know that the Russians can out-Saudi the Saudis. Also I think US interests don’t want a prolonged period of cheap oil, they want a quick jump to higher prices. It is the marginal producers that get squeezed and a lot of people (Important People) want to get the Tar Sands and Fracking $ flowing again.

    And, there seems to be a predisposition to wanting “active measures” rather than playing a long game.

    Hypothetically, it could go something like: Saudis cuts off from US aid and arms; internal disturbances or local external – either Yemenis with fresh arms, or an incident with Iran. Then facilities get damaged, shipping lanes closed and governments fall.
    Profit.

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