Thomas Mann wrote, “War is only a cowardly escape from the problems of peace”.
Al-Naimi and Saudi Arabia are now fighting an oil price war with the Russians, the Americans and within OPEC itself because it refused to take on the responsibility of its position back in November 2014 and agree to cut production in order to shore up the price per barrel.
Instead it forced others to keep pumping, knowing it could do so for less cost and for longer time than the others, in a megalomaniac bid to hold the top spot in the list of global oil superpowers.
It’s always worth remembering where prices were 19 months ago. The average barrel of brent was $107. This week after another OPEC summit in Vienna where this oil minister was not for turning they sank to $35.36.
It has not gone down well. Iran, which has almost completed the diplomatic physio required to see the crippling sanctions lifted, is watching as the market crashes. The last report from the IEA talks of “greater pessimism” and how OPEC is “pumping at will” to see off rivals, disregarding the consequences to its own members. Commerzbank analysts looking at it said with no suggestion of supply reduction even before the end of 2016, “there is unlikely to be any kind of ‘happy ending’ this year.” Bank of America say there is a risk of a “full-blown out war” within OPEC itself if prices remain as they are, as OPEC’s revenue would then suffer a catastrophic collapse from $1.2 trillion in 2012 to $400bn this year.
Russia meanwhile appears to be hunkering in for the long run. Maxim Oreshkin, the deputy finance minister, told a Russian newspaper that, “We will live in a different reality”, confirming reports that plans had been drawn up which rely on a price band of $40 – $60 until 2022. The Telegraph says this is “the latest escalation in a game of strategic brinkmanship between the kremlin and Saudi Arabia already at daggers drawn over Syria.”
Although Russia has bared its teeth with this ‘risk scenario’, Governor Elvira Nabiullina admits this outcome would severely dent its chances of making a robust economic recovery. Iran’s not the only one living with sanctions – Russia is too following the Ukrainian crisis. There is a deep recession. Incomes have dropped by 9%. It’s also coping with a jumpy domestic market with inflation rates failing to climb down as rapidly as some expected. Nabiullina told reporters, “External conditions remain complicated with persistent unfavourable trends.” She did not predict a recovery in the near future.
The Kremlin believes Saudi Arabia is trying to force it back to the table and create some form of an agreed marriage where OPEC and Russia team up to sign off on a production cut. Arkady Dvorkovich, Russia’s deputy premier, thought in September when they could have been perceived as having the upper hand that OPEC would “have to change tack.” He told The Telegraph “They can last a few months, to a couple of years.” On Friday came this from OPEC – no plan to deviate from its current plan but then its chief Abdallah Salem el-Badri said, “We are looking for negotiations with non-OPEC and trying to reach a collective effort. Everybody is trying to digest how they can do it.”
Problem is, by the time they figure it out it may be too late.