Does Saudi Arabia's refusal to cut oil production amount to economic warfare?

Why would Europe retaliate at Saudi Arabia for selling oil?

Isn’t what you are saying that the US and Canada are also to blame for increasing supply of shale oil?

Should our governments in the West impose taxation on oil, so that prices increase, if that’s the problem? Or should Europe be upset over what the Saudis are ‘doing to Russia’?

Overall it is a sincere problem that oil is too cheap. That halts development that we sincerely need to curb our carbon fuel consumption. I fail to see, though, why we should blame Saudi exclusively, or why it would be fair to focus on the Saudis to pay for the increased production in the US and Canada by limiting their production.

The retaliation I’m suggesting would come from Russia, not Europe.

They can afford to keep the price low for a long while. By doing so they can put the shale oil and alternative energy companies out of business. When that happens they will jack the price back up with a vengeance. American consumers are happily paying $1 per gallon at the pump and spending the few hundred dollars they will save if it stays this way for a year. We’ll keep doing it until we get slammed in the face with $4, $5, $6 /gal when the other options are gone and we have no choice. (We will also pretend to be surprised.)

The US needs to make the hard decision now and tax imports at a level that will maintain a reasonably high price level that will encourage alternatives and conservation.
If I were king I’d make it $4 and use the funds for infrastructure repair and improvements and alternative energy development.

Hardly. It’s the free market at work. We have two competitors (US and SA) trying to sell the same product. They’re each going for market share.

This is not a war – this is capitalism at its best.

It has been almost 50 years since the US was under the blackmailing thumb of the Arab states. This current situation should be celebrated.

If the US won’t tax oil it will be up to the consumer. Rather than spending the “windfall” (actually less than $12 per week for the average US consumer.) we should be banking it and saving for the time when it rebounds beyond the $5 level – as it most certainly will when the domestic producers are put out of business.

@LuckyGuy – wishful thinking. The average person doesn’t have that discipline. More likely the $12 each week will go to a movie or a couple burgers.

That said, additional discretionary spending is a good thing in our economy

Yes, but subtly and not directed at Russia.

ISIS and Iran, both of whom despise Saudi Arabia, are funded by oil, and run into difficulty when oil drops below $70 a barrel. Iran is a virtual welfare state funded by oil, because that is the only way they can keep the population from going berserk over the clergy control. ISIS is buying armaments by selling black market oil from fields it has captured and processing facilities it has taken over.

@elbanditoroso I realize it is wishful thinking. People see $3 and think they are saving so much money from $4. When (not if) it hits $5 they will complain bitterly about the high price. Reality check: for the average person (12,000 miles per year @ 20 mpg = 600 gallons) it will only be an additional $12 per week.
These low prices will put North American producers of shale oil out of business. You can bet on it. The stock market certainly is.

@LuckyGuy The consumers have spoken Gas prices have dropped, let’s buy gas guzzlers again!. and from CNN

Time to look into buying that used Hummer again!

Gas demand is relatively inelastic, and much more inelastic over time. So while rising gas prices cause some small changes in behavior, the largest reaction is consumer grumbling.

@LuckyGuy “These low prices will put North American producers of shale oil out of business. You can bet on it. The stock market certainly is.”

I desperately hope so. Tarsands and fracking are two of the most ingenious methods to fuck up this planet we have come up with in recent years.

I fail to understand what possible economic retaliation is available to Russia to inflict on the House of Saud. It’s a mistake to view the Saudi decision as a deliberate effort to squeeze Russia. The existence of Saudi Arabia is tied exclusively to the pumping of oil, and it is no exaggeration to state that the land is the most extravagant and corrupt welfare state in the history of the world. The size of the Saudi royal family is staggering. For decades the birth rate for new prince and princesses has exceeded one a day, with each entitled to a huge stipend, and the majority of them clamoring for more. Since the stability of the place is exclusively dependent on increasing revenues, it shows great restraint on the part of the Saudis, blessed with an ocean of high grade easily recoverable oil to not INCREASE production. While it’s true that Russia suffers from cheap oil to the extent that a long term decline in oil prices might well make for the undoing of the country, the argument might just as easily be made that the onset of fracking in the United States, and tar sand exploitation in Canada were designed to topple the great bear.

Might fuel the speculation at least.

I fail to see the problem here. Yes Russia will feel the pinch. Better them than us. The falling oil prices are likely the single reason we are beginning to see a recovery. The oil companies won’t go out of business but they will slow the growth of new oil fields. If prices rise again, so will exploration for new oil. Hell this is capitalism at its finest. As stated above OPEC has been controlling the price of oil for 30 years. Now with significant new oil being found in S.America, N.America, Russia, etc. The Saudi’s are losing control. This is a ploy to try and turn off the spigot in N.America but I don’t see it working for the long term.

@LuckyGuy – Remember that the price of oil affects everything. If it’s transported oil supplies both the energy and the roads. And let’s not forget that many of us (everyone I know) has more than one car. We use about 134 billion gallons a year and with a $1 savings per gallon that is the same as a $134 billion stimulus every year.

Overall, this will hurt Russia but it may bring our economy back to full strength. It’s a good thing.

I tend to agree with @Jaxk on this one (surprise!), but for some different reasons. I don’t think the Saudis’ actions are an act of war. What I do think is that we are seeing an evolution in international economics. The Saudis seem to see the writing on the wall as far as the future of an international economy based on oil. They see the need for a shift from fossil-fuel to renewable energy as a certainty, so they are dumping their oil on to the market. It’s a good thing on several fronts: the falling oil prices are helping our economic recovery; it will also be lowering the economic gains from shale oil production, thereby making fracking less profitable.

@Jaxk The Saudis aren’t losing control. Opec is losing control. The Saudis are unique in that their share of production combined with the negligible costs involved with draining that ocean of oil renders them capable of setting the price of oil ALL BY THEMSELVES. Their corrupt and obtuse social setup might hinder them somewhat, but is an interesting question as to the actual net worth of the country in assets after 60 years of snatching up assets by the billions abroad.

@Jaxk Once again I see no advantage to us in a cash starved kleptocracy destined for Russia. There are few threats to the world that could possibly compare to a disintegrating Russia

Actually Russia, Saudi, and the US are fairly equal in oil production. Saudi has the cheapest but they are no longer able to dictate the price. If they can cripple our production, that would go a long ways to putting them back in the position of dictating the price.

As for a disintegrating Russia, no body wants that. We will however be much better off if our economy strengthens, especially if Russia’s fails. If we can get our economy going again we can weather almost anything.

It is my understanding that the US and Canada has huge reserves of heretofore inaccessible oil reserves amounting to many times the known reserves of the Persian Gulf area. By reducing the amount of oil we need to import to fuel our economy isn’t that a good thing? I am kind of hoping the price of diesel fuel comes down now that I have one. I have read that some economists are seeing this new ‘oil boom’ as analogous to the boom of the ‘30’s and ‘40’s. perhaps to usher in a time of new found prosperity when we become a net exporter rather than a net importer.

@Jaxk We may be matched in production, but the question that matters is which country is most or least dependent on the production of oil, in other words, which of the 3 countries can ACTUALLY decide to produce or withhold the production of oil. The Saudis ALONE can regulate both our fracking industry and oil shale production along with the future of every oil based economy of the world with a mere nudge of the tap. They may be profligate and corrupt, but the one area in which they invested well was in the economic expertise necessary to the superb manipulation of the petroleum market.

@dappled_leaves And one minute after they go under the Saudi’s will raise the price. We need the price high so alternatives can be made.

@LuckyGuy I am all for alternatives – just not those alternatives. They would cost us far, far more in the long run than any other energy source.

Our production could be increased considerably if they open federal lands to oil exploration. If the Saudi’s do try to raise the price (by cutting production) our production should rise to counter that.

@LuckyGuy – The solution is not to raise the price of oil artificially to make it less competitive but rather to make other energy sources cheaper so that they compete. The last I saw home solar panels only ran at about 18% efficiency while commercial units go as high as 30%. New technology can drive that up to 40%. I would expect that to grow over time. Let’s not cripple ourselves economically when don’t need to. Our usage has already leveled off and will decline as we improve other sources if we don’t panic. A strong economy is the best way to solve most of our problems including renewable energy.

IF they open up federal lands to oil production ALL profits should go into the public coffers, not the pockets of private firms or individuals.

@rojo Agreed. But no private company would do that, so a public company would have to be set up. And that’s just too damned socialist for the people of the West. It would be too much like Venezuela’s or Iran’s approach to oil.

Saudi Arabia refuses to cut oil production because they do not want to lose their market shares in US, Russia or Canada’s hands. Among OPEC countries, Saudi is the leader who is not going well with Iran. When the oil price goes down, it harms small OPEC members including Iran. So I think the main reason is due to political competition.