Forget Glasnost, Mikhail Gorbachev and the arms race. What really broke the Soviet Union was the collapse of oil prices in the late 1980s. The late economist Yegor Gaidar, one of Boris Yeltsin’s prime ministers, wrote in 2007 that the empire’s fall could be traced back to Sept. 13, 1985, when Saudi Arabia, fed up with holding back supply to prop up prices, opened the spigots in a quest to recover lost market share. That day, he argued convincingly, was the beginning of the end.
The USSR, pumping almost 12 million barrels a day, was the world’s largest producer at the time. Riyadh’s change in policy caused a price shock: Oil fell from about $25 a barrel to less than $10 in the months that followed, and stayed low for the rest of the decade, costing the Soviet economy $20 billion a year in lost revenue—“money without which the country simply could not survive, ” Gaidar wrote.
Russia is the world’s biggest oil producer again now (though Saudi Arabia is the biggest exporter) but its economy still depends heavily on selling energy. Oil and gas exports account for about half of Russia’s budget and about 30 percent of its GDP. This makes it vulnerable. If the West wanted to punish President Vladimir Putin for his land grab in Crimea, runs the argument, it should target the energy revenues that keep his petro-economy afloat. (…)
(The extract above is published courtesy of Politico. The rest of it is here.)
The Saudis are worried that high prices are hurting the world’s economy
Oct 6th 2012 | DAMMAM | from the print edition
CRANES loom over the landscape in Dammam, a sprawling port city on Saudi Arabia’s Gulf coast. Shiny shopping malls are rising. Flashy cars stream across the causeway towards Bahrain and its nightlife. Young Saudis are making the most of their kingdom’s latest oil boom.
In a compound up the road in Dhahran sits Saudi Aramco, the world’s largest exporter of crude oil and the source of the country’s flourishing finances. Oil prices have averaged about $110 a barrel this year and for months Aramco has been pumping around 10m barrels a day (b/d), one of its highest rates. The Energy Information Administration, the American energy department’s statistical arm, says Saudi Arabia’s net oil income in 2011 was $311 billion. Prices were lower then; this year the country will earn even more. (…)
I’m back from a 10-day whistle-stop tour of the UAE, Bahrain and Saudi Arabia. I’ve already filed some stories, but bigger projects are an Iran update and a piece on Saudi Arabia’s domestic situation.
Writing about the kingdom isn’t easy. I spent an afternoon with a key contact in the oil ministry, who gave me a full download of Saudi Arabia’s marketing strategy. There’s a forthcoming PE piece, in which I explain why another supply pledge from the kingdom doesn’t necessarily mean more oil — or a price reaction from the market. Saudi Arabia doesn’t play the spot market and it doesn’t usually discount its oil. “The word ‘discount’ is never heard in the same room with Ali Naimi,” says one insider, talking of the Saudi oil minister’s stance.
It’s more of a slow-burn strategy: inflate global stocks, build up the kingdom’s gas production (to increase oil-export capacity), and keep assuring the market that there’s enough supply — and then some — to go around.
No one should doubt, though, that Brent above $100 a barrel is annoying Naimi.
The other side to the Saudi story — the risks of internal unrest in the largely Shia Eastern Province — is far more difficult to navigate. That’s part of what I’m working on now. If anyone has any information, please get in touch.
I’m busy. In addition to editing the ever-expanding Petroleum Economist and its excellent new channel on unconventional energy (called, imaginatively enough, PE Unconventional), I’ve four major writing projects on the go.
A long piece for The Economist on the tar sands (or oil sands, if you prefer)
An in-depth look, for Petroleum Economist, at Iraq’s ambitions as an oil producer
Another take on the global gas glut, also for Petroleum Economist
And my book on oil addiction and the decline of the West
The last of these is a weekend and weekday 5am-7am project. The early starts are the only hours I can find when my children aren’t commanding space, time, and energy. (**I’m not complaining. Frankly, they’re more interesting.**)
The usual requests: if anyone wishes to contact me about stories, you know where to find me.