From Canada's BOE Report, April 4:
Here in the weird West, where we set aside our vast wealth, bountiful resources, technological prowess, best-in-history medical/safety establishments, and other assorted existential victories to get into fistfights about whether more racism will eliminate racism and who can go to the bathroom where, we are used to watching ancient conflicts take place on the other side of the world, shaking our head, and wondering either “Why can’t they all just get along” or “Well that’s unacceptable, better step in.”
The weird west has long gotten involved in many of these conflicts because of, well, o-i-l. It’s been that way since the 1950s, probably longer; the west’s insatiable thirst for hydrocarbons has driven a lot of international shenanigans and weird relationships. Recall that after a gang of terrorists hijacked four planes and flew them into the US’ most fundamental landmarks on home soil, and that more than half of those terrorists were from Saudi Arabia, the US promptly and expectedly retaliated – by invading two other countries, and going for tea with Saudi Arabia. Kind of transparent, that one.
But that established hydrocarbon-based camaraderie is fading fast, and it doesn’t look like the West has a game plan in response. That’s about as far as I’ll wade into geopolitics because the whole mess is grossly complicated (who hates who again this week?), other than to point out how rapidly things are changing and how that is impacting the energy world.
As a backbone or framework for this whole discussion, keep in mind that low gasoline prices are of paramount importance to US politicians. They trump everything. No matter what tub is being thumped or what policy is being terror-drilled into the minds of citizens (climate emergency, for example), it will be dropped like a hot potato if it means higher gasoline prices.
Consumers don’t really care about big geopolitical things in their day-to-day life, and they aren’t really scared by the weather (tornado alley excepted). But gasoline prices are on every huge sign in every town in every state; nothing else has its price shoved in your face so vehemently. And those consumers really get up in arms when gasoline prices get too high.
To show how seriously politicians take this, the US half-drained the strategic petroleum reserve last year for the sole purpose of lowering domestic gasoline prices before an election.
The west has befriended some fairly dubious characters in the past to ensure access to big juicy oil fields (see 9/11 example above). Much of the world order as we know it has been built around access to cheap energy. For the longest time, it was the US’ might economic engine, the biggest by far in the world, that moved the big chess pieces around.
Everything went through the US – either through Washington, or through Wall Street. That’s not necessarily a critique; that’s what superpowers do.
But storm clouds are on the horizon for the existing superpower order.
Just this past weekend, OPEC – led by Saudi Arabia – announced another production cut in a bid to shore up oil prices. Now, on its own, this isn’t a big deal; OPEC/Saudis have been doing that for decades (both real cuts and sabre-rattling false charges). But this cut was a big deal – it was huge, possibly 1.6 million barrels per day (probably less, but still significant), and it was directly in the face of the US administration which wants to see more oil, and not less. Increased oil prices are like a new tax on everyone, a tax that hits poor people hardest, and politicians seldom want to be associated with that.
Not very long ago, the US government was admonishing producers to produce more, urging OPEC to open the taps, and then finally draining strategic reserves, all in effort to drive down gasoline prices.
A few months into 2023, with oil prices far lower than last year, the US is supposed to be refilling the SPR, which would have had the effect of stabilizing oil prices in this range. But they won’t do it, and Saudi Arabia + buddies said ‘enough’ and acted voluntarily in a move that seemed to surprise almost everyone.
This isn’t just oil market machinations; this is the tip of a very big iceberg. It is a new big kid on the block flexing its muscles. I’m not referring to Saudi Arabia here, but a whole new context in which Saudi Arabia appears to be quite comfortable in going its own way. Here’s why they are feeling that chipper.
The BRICS alliance – Brazil, Russia, India, China and South Africa – is apparently no longer willing to stand by and have someone else dictate how their world will go (so to speak). They are flexing their muscles, and bringing in other nations as well. The following countries have expressed an interest in joining BRICS – Iran, Saudi Arabia, Argentina, the United Arab Emirates, Algeria, Egypt, Bahrain and Indonesia, along with two nations from East Africa and one from West Africa, according to a Bloomberg article. There is talk that Mexico wants to join as well, which is quite the thunderbolt considering the leaky border it shares with the US.
The repercussions of this development are hard to understate. Consider Iran, historically viewed as a troublemaker here in the West, dubbed a member of the “Axis of Evil” by George W. Bush some 20 years ago. Iran has been (at least theoretically) shut out of global oil markets because of their tinkering with nuclear weapons and their animosity towards neighbours that have a lot of oil (more than Iran anyway, which is the equation that matters).
Iran has been sanctioned, yelled at, barred from oil markets, and viewed as a pariah. Even many in the neighbourhood can’t stand them; per a 2019 BBC article, Saudi Arabia and Iran are ‘bitter rivals’ fighting for regional control, and probably have been for a thousand years ever since someone forgot to take their boots off in somebody’s house or something (history is not my strong suit)....
....MUCH MORE