Inside Saudi Arabia’s Decision to Launch an Oil-Price War

Riyadh prepares emergency budget for $12-20 a barrel oil; “It’s all about egos now.”

Saudi Arabia and Russia intensified an escalating oil-market war on Tuesday, with Riyadh set to raise output to record levels and Moscow saying it was ready to pump more crude.

State-run Saudi Arabian Oil Co. said it would boost production to 12.3 million barrels a day in April, some 300,000 barrels a day over the company’s previous maximum sustained capacity.

Russian Energy Minister Alexander Novak, meanwhile, said his country could rapidly open its own taps.

Oil prices lost a fifth of their value Monday, after Saudi Arabia over the weekend slashed its crude prices and signaled it would boost its output next month. The move followed Russia’s rejection of a Saudi-backed plan by the Organization of the Petroleum Exporting Countries to cut crude output in response to dwindling demand in China and elsewhere.

Even as the price war escalated with fresh salvos from both sides, former Saudi energy minister Khalid al-Falih was in talks with Mr. Novak in an attempt to reverse the production hikes and revive the collective OPEC-Russia output curbs, according to Saudi-government advisers and officials.

Mr. Falih, who negotiated the initial production cuts in 2016, is now Saudi Arabia’s minister of investments. His outreach to Mr. Novak is done with the approval of Saudi authorities, the advisers said. If Mr. Falih’s mediation succeeds, the advisers and officials said, OPEC and its allies including Russia will convene an emergency meeting in April.

Mr. Novak said Moscow isn’t ruling out further cooperation with OPEC, adding that the next scheduled meeting is planned for May or June.

“The doors are not closed,” he said.

Amid the escalating fight, President Trump called Saudi Crown Prince Mohammad bin Salman on Monday to discuss global energy markets, the White House said Tuesday morning. The leaders also discussed “other critical regional and bilateral issues,” according to a statement.

Global GlutOil prices have fallen as demand from China has slowed and Saudi Arabia haspledged to pump more.

Saudi Arabia and Russia’s decisions to flood markets are surprising, as China—the world’s largest oil importer—has been hobbled by the deadly coronavirus, which has hurt its demand for oil after refineries and factories were forced to shut.

Saudi Arabia’s struggle for oil-market supremacy might earn it a sliver of market share at the expense of Russia and rival U.S. shale producers, but the cost of a price war might be too much for the kingdom to bear, analysts and oil officials say.

The combination of declining global consumption and rising supply pushed Brent crude, the benchmark for global prices, to its sharpest decline since the first Gulf War in 1991 on Monday. Some of these losses were recouped Tuesday as the Brent oil price gained 8% amid a broader revival in markets.

Saudi Arabia’s aggressive discounts are targeting some of Russia’s core markets in China and Northern Europe. The kingdom is also taking aim at U.S. oil producers, Saudi and OPEC officials said.

The Russian energy minister declined to comment and the Saudi energy minister didn’t respond to a request for comment.

Some oil officials say theystruggle to see the logic behind Saudi Arabia’s decisions. Others see the battle as tied to Prince Mohammed’s recent efforts to tighten his grip on power and raise his international clout, according to people involved in the OPEC talks.

Russia’s failure to find common ground with Saudi Arabia and OPEC on oil cuts was preceded by talks in early February between Riyadh and Moscow that focused on the possibility of forging a broader, long-term alliance. Under one scenario, Saudi Arabia would have sped up its investments inside sanctions-hit Russia and backed the Kremlin’s military efforts in Syria, according to people familiar with the matter.

Ultimately, the crown prince didn’t commit to a deal, say the people familiar with the matter, because he didn’t want to alienate the U.S. Weeks later, roughly at the same time that Russia was refusing to endorse the Saudi-backed plan to cut oil output, Mr. Putin was initiating a rapprochement with Turkey, a Saudi foe, the people said.

“It’s all about egos now, not about the oil market,” said a Saudi-government adviser.

Meanwhile, Prince Mohammed saw the OPEC debate as a way to assert his broad influence over the kingdom’s oil policies and to prove to his older brother, Saudi energy minister Prince Abdulaziz bin Salman, that he could force Russia’s hand, according to people familiar with his thinking.

In a terse phone call to Prince Abdulaziz late Thursday, the crown prince overruled his brother, who had agreed to a three-month production cut with OPEC, and extended the proposed cuts through the end of the year, these people said.

Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, on Thursday.

PHOTO: CHRISTIAN BRUNA/SHUTTERSTOCK

The crown prince ordered the minister to force OPEC to adopt the decision—even if that meant risking any hope that Russia would join in, they said.

Now the kingdom is pursuing a strategy of undercutting its rivals by drowning markets with cheaper oil—a move that has a tendency to backfire, say longtime market watchers.

On Saturday, the Saudi energy ministry told Aramco officials that instead of cutting production, they should pump more oil and lower the price. Saudi Arabia soon spread the word throughout the market. “It was the Saudi declaration of war against Putin,” said a senior Saudi official.

Within hours, officials at the finance ministry were tasked with preparing a budget scenario that envisions benchmark Brent crude prices dropping into a $12-$20 a barrel range. All Saudi ministries were also asked to cut their spending significantly to prepare for this scenario.

But the strategy has backfired before.

In 2014, then-Saudi oil minister Ali al-Naimi persuaded OPEC to pump at will to compete with U.S. shale producers. His rationale was that the cartel’s members had the ability to produce at extremely low costs. But after the price of Brent crude fell below $28 a barrel in early 2016, the Saudi royal family fired him. His successor, Mr. Falih, negotiated a pact between OPEC and Russia to cut production in the first OPEC+ deal. Within months, oil prices more than doubled.

The move to depress prices also missed its mark in the 1980s and led to a period known in oil circles as the “Lost Decade.” In 1986, OPEC faced competition from rising North Sea production. Saudi Arabia’s delegation was so upset about OPEC members flouting the group’s production agreements that it unleashed a flood of oil that sank prices for a prolonged period.

Eventually, Saudi Arabia backtracked and cut production, but the move wasn’t a complete failure, as it helped score a political victory against the Soviet Union. Riyadh had been backing insurgents battling Russia in Afghanistan—many of whom would later found al Qaeda. As the oil price fell to around $30 a barrel, Russia faced a budget crisis that contributed to food shortages and an end to its war in Afghanistan. Its then-leader Mikhail Gorbachev retreated from Kabul and launched the restructuring of Russia under his perestroika policy.

Russia is better prepared to weather low oil prices than in the past. Oil is now accounts for less than a third of budget revenue. The country has also accumulated massive reserves. The Russian finance ministry said Monday that it could withstand 10 years of prices at $25 to $30 a barrel.

Still, some Russian producers say the oil-market war is excessive.

“I’m in shock. This is a very unexpected, irrational decision to put it mildly,” Leonid Fedun, vice president of Russian private producer Lukoil was reported as telling Russian newspaper the Bell. Russian oil companies would like to increase production, he said, but that won’t make up for losses from falling prices.

The mood is more somber in Saudi Arabia, which needs oil prices over $60 a barrel to balance its budget, according to Saudi officials. The kingdom is now contending with its own coronavirus outbreak, moving Monday to suspend all air travel with many of its neighbors.

Saudi Arabia’s national oil company Aramco fell about 7% to 27.95 riyals ($7.45) a share on the Saudi domestic exchange Monday. The Saudi price decrease has “literally burned all global energy investors,” said a Saudi official. “[Saudi Aramco] Won’t sell a share to foreigners again,” he said, referring to the Crown Prince’s plan to list Aramco internationally.

Australia Is Committing Climate Suicide

As record fires rage, the country’s leaders seem intent on sending it to its doom.

Australia today is ground zero for the climate catastrophe. Its glorious

The images of the fires are a cross between “Mad Max” and “On the Beach”: thousands driven onto beaches in a dull orange haze, crowded tableaux of people and animals almost medieval in their strange muteness — half-Bruegel, half-Bosch, ringed by fire, survivors’ faces hidden behind masks and swimming goggles. Day turns to night as smoke extinguishes all light in the horrifying minutes before the red glow announces the imminence of the inferno. Flames leaping 200 feet into the air. Fire tornadoes. Terrified children at the helm of dinghies, piloting away from the flames, refugees in their own country.

The fires have already burned about 14.5 million acres — an area almost as large as West Virginia, more than triple the area destroyed by the 2018 fires in California and six times the size of the 2019 fires in Amazonia. Canberra’s air on New Year’s Day was the most polluted in the world partly because of a plume of fire smoke as wide as Europe.

Scientists estimate that close to half a billion native animals have been killed and fear that some species of animals and plants may have been wiped out completely. Surviving animals are abandoning their young in what is described as mass “starvation events.” At least 18 people are dead and grave fears are held about many more.

All this, and peak fire season is only just beginning.

As I write, a state of emergency has been declared in New South Wales and a state of disaster in Victoria, mass evacuations are taking place, a humanitarian catastrophe is feared, and towns up and down the east coast are surrounded by fires, all transport and most communication links cut, their fate unknown.

An email that the retired engineer Ian Mitchell sent to friends on New Year’s Day from the small northern Victoria community of Gipsy Point speaks for countless Australians at this moment of catastrophe:

“All

we and most of Gipsy Point houses still here as of now. We have 16 people in Gipsy pt.

No power, no phone no chance of anyone arriving for 4 days as all roads blocked. Only satellite email is working We have 2 bigger boats and might be able to get supplies ‘esp fuel at Coota.

We need more able people to defend the town as we are in for bad heat from Friday again. Tucks area will be a problem from today, but trees down on all tracks, and no one to fight it.

We are tired, but ok.

But we are here in 2020!

Love

Us”

The bookstore in the fire-ravaged village of Cobargo, New South Wales, has a new sign outside: “Post-Apocalyptic Fiction has been moved to Current Affairs.

And yet, incredibly, the response of Australia’s leaders to this unprecedented national crisis has been not to defend their country but to defend the coal industry, a big donor to both major parties — as if they were willing the country to its doom. While the fires were exploding in mid-December, the leader of the opposition Labor Party went on a tour of coal mines expressing his unequivocal support for coal exports. The prime minister, the conservative Scott Morrison, went on vacation to Hawaii.

Since 1996 successive conservative Australian governments have successfully fought to subvert international agreements on climate change in defense of the country’s fossil fuel industries. Today, Australia is the world’s largest exporter of both coal and gas. It recently was ranked 57th out of 57 countries on climate-change action.

In no small part Mr. Morrison owes his narrow election victory last year to the coal-mining oligarch Clive Palmer, who formed a puppet party to keep the Labor Party — which had been committed to limited but real climate-change action — out of government. Mr. Palmer’s advertising budget for the campaign was more than double that of the two major parties combined. Mr. Palmer subsequently announced plans to build the biggest coal mine in Australia.

Since Mr. Morrison, an ex-marketing man, was forced to return from his vacation and publicly apologize, he has chosen to spend his time creating feel-good images of himself, posing with cricketers or his family. He is seen far less often at the fires’ front lines, visiting ravaged communities or with survivors. Mr. Morrison has tried to present the fires as catastrophe-as-usual, nothing out of the ordinary.

This posture seems to be a chilling political calculation: With no effective opposition from a Labor Party reeling from its election loss and with media dominated by Rupert Murdoch — 58 percent of daily newspaper circulation — firmly behind his climate denialism, Mr. Morrison appears to hope that he will prevail as long as he doesn’t acknowledge the magnitude of the disaster engulfing Australia.

Mr. Morrison made his name as immigration minister, perfecting the cruelty of a policy that interns refugees in hellish Pacific-island camps, and seems indifferent to human suffering. Now his government has taken a disturbing authoritarian turn, cracking down on unions, civic organizations and journalists. Under legislation pending in Tasmania, and expected to be copied across Australia, environmental protesters now face up to 21 years in jail for demonstrating.

“Australia is a burning nation led by cowards,” wrote the leading broadcaster Hugh Riminton, speaking for many. To which he might have added “idiots,” after Deputy Prime Minister Michael McCormack blamed the fires on exploding horse manure.

Such are those who would open the gates of hell and lead a nation to commit climate suicide.

More than one-third of Australians are estimated to be affected by the fires. By a significant and increasing majority, Australians want action on climate change, and they are now asking questions about the growing gap between the Morrison government’s ideological fantasies and the reality of a dried-out, rapidly heating, burning Australia.

The situation is eerily reminiscent of the Soviet Union in the 1980s, when the ruling apparatchiks were all-powerful but losing the fundamental, moral legitimacy to govern. In Australia today, a political establishment, grown sclerotic and demented on its own fantasies, is facing a monstrous reality which it has neither the ability nor the will to confront.

Mr. Morrison may have a massive propaganda machine in the Murdoch press and no opposition, but his moral authority is bleeding away by the hour. On Thursday, after walking away from a pregnant woman asking for help, he was forced to flee the angry, heckling residents of a burned-out town. A local conservative politician described his own leader’s humiliation as “the welcome he probably deserved.”

As Mikhail Gorbachev, the last Soviet leader, once observed, the collapse of the Soviet Union began with the nuclear disaster at Chernobyl in 1986. In the wake of that catastrophe, “the system as we knew it became untenable,” he wrote in 2006. Could it be that the immense, still-unfolding tragedy of the Australian fires may yet prove to be the Chernobyl of climate crisis?

China Finds It Can Live Without the U.S.

Hawks in Washington speak of ‘decoupling.’ Xi Jinping is already busy doing that—his way.

A China hand and former Treasury Department colleague told me before the 2016 election that officials in Beijing preferred Donald Trump to Hillary Clinton because they thought Mr. Trump would be an easier negotiator.

Yet Mr. Trump has proved to be anything but—and in ways that ill serve U.S. interests. Through a series of vacillating threats and entreaties that often seem to be decided on a whim, he has shown President Xi Jinping that he is an unreliable negotiator. Mr. Trump’s public bullying makes it hard for Mr. Xi to accept any deal while saving face, which is very important to the Chinese. Thus Mr. Xi is no longer earnestly negotiating, merely going through the motions.

The Costs of China’s Crackdown on Hong Kong

The new buzzword in Washington discussions of Sino-U.S. negotiations is “decoupling.” From the Trump administration’s perspective, they are threatening Beijing with the prospect of disentangling the U.S. and China entirely and creating two distinct economic systems, similar to the bipolar world of the Cold War. Many in Mr. Trump’s orbit believe that blocking China’s access to U.S. technology would thwart China’s attempts to surpass the U.S. on the world stage.

This approach is naive and probably counterproductive. It is accelerating rather than slowing the Made in 2025 program. Mr. Xi has jettisoned Deng Xiaoping ’s established strategy: “Hide your strength, bide your time, never take the lead.” From his perspective, decoupling is not only an American threat—it’s the new Chinese strategy.

Nowhere is this more evident than Huawei’s case. The Trump administration has temporarily cut off most transactions between U.S. companies and Huawei, and China hawks are pushing the president to make this decoupling permanent. Meanwhile, Mr. Trump dangles access to American-made components as leverage to get Mr. Xi to buy American soybeans. But Mr. Xi does not appear interested in tactical détente as he was last year, when he asked Mr. Trump to save ZTE, the other prominent Chinese telecommunications firm. Instead of giving in to Mr. Trump’s demands, Huawei recently introduced its own operating system, Harmony, an alternative to Android that will reduce Huawei’s reliance on U.S. technology.

I do not contend that China is benign or even that Mr. Trump has misdiagnosed the problem. Rather, my concern is that the president’s erratic approach has aggravated the situation by encouraging Mr. Xi to embrace decoupling on his own terms. After more than two decades of globalization, severing the integrated supply lines of the world’s two largest economies will necessarily be messy. For the U.S., Mr. Trump’s approach makes it even messier.

Making Sense of the New American Right

Keeping track of the Jacksonians, Reformicons, Paleos, and Post-liberals.

I like to start my classes on conservative intellectual history by distinguishing between three groups. There is the Republican party, with its millions of adherents and spectrum of opinion from very conservative, somewhat conservative, moderate, and yes, liberal. There is the conservative movement, the constellation of single-issue nonprofits that sprung up in the 1970s

  • gun rights,
  • pro-life,
  • taxpayer,
  • right to work

— and continue to influence elected officials. Finally, there is the conservative intellectual movement: writers, scholars, and wonks whose journalistic and political work deals mainly with ideas and, if we’re lucky, their translation into public policy.

China is Losing the New Cold War

In contrast to the Soviet Union, China’s leaders recognize that strong economic performance is essential to political legitimacy. Like the Soviet Union, however, they are paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race with the US.

When the Soviet Union imploded in 1991, the Communist Party of China (CPC) became obsessed with understanding why. The government think tanks entrusted with this task heaped plenty of blame on Mikhail Gorbachev, the reformist leader who was simply not ruthless enough to hold the Soviet Union together. But Chinese leaders also highlighted other important factors, not all of which China’s leaders seem to be heeding today.
.. But overseeing a faltering economy was hardly the only mistake Soviet leaders made. They were also drawn into a costly and unwinnable arms race with the United States, and fell victim to imperial overreach, throwing money and resources at regimes with little strategic value and long track records of chronic economic mismanagement. As China enters a new “cold war” with the US, the CPC seems to be at risk of repeating the same catastrophic blunders.
.. China spent some $228 billion on its military last year, roughly 150% of the official figure of $151 billion.
.. the issue is not the amount of money China spends on guns per se, but rather the consistent rise in military expenditure, which implies that the country is prepared to engage in a long-term war of attrition with the US. Yet China’s economy is not equipped to generate sufficient resources to support the level of spending that victory on this front would require.
If China had a sustainable growth model underpinning a highly efficient economy, it might be able to afford a moderate arms race with the US. But it has neither.
.. China’s growth is likely to continue to decelerate, owing to rapid population aging, high debt levels, maturity mismatches, and the escalating trade war that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.
.. while the Chinese economy may be far more efficient than the Soviet economy was, it is nowhere near as efficient as that of the US. The main reason for this is the enduring clout of China’s state-owned enterprises (SOEs), which consume half of the country’s total bank credit, but contribute only 20% of value-added and employment.
.. the CPC is that SOEs play a vital role in sustaining one-party rule, as they are used both to reward loyalists and to facilitate government intervention on behalf of official macroeconomic targets.
.. Dismantling these bloated and inefficient firms would thus amount to political suicide. Yet protecting them may merely delay the inevitable, because the longer they are allowed to suck scarce resources out of the economy, the more unaffordable an arms race with the US will become – and the greater the challenge to the CPC’s authority will become.
.. The second lesson that China’s leaders have failed to appreciate adequately is the need to avoid imperial overreach. About a decade ago, with massive trade surpluses bringing in a surfeit of hard currency, the Chinese government began to take on costly overseas commitments and subsidize deadbeat “allies.”
.. Exhibit A is the much-touted Belt and Road Initiative (BRI), a $1 trillion program focused on the debt-financed construction of infrastructure in developing countries.
.. An even more egregious example of imperial overreach is China’s generous aid to countries – from Cambodia to Venezuela to Russia – that offer little in return.
.. from 2000 to 2014, Cambodia, Cameroon, Côte d’Ivoire, Cuba, Ethiopia, and Zimbabwe together received $24.4 billion in Chinese grants or heavily subsidized loans. Over the same period, Angola, Laos, Pakistan, Russia, Turkmenistan, and Venezuela received $98.2 billion.
.. Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

Tune Into The Real Ronald Reagan

There is nothing clandestine about Dugger’s quarry of new material, though Reagan’s staff has done its best to play it down. The material consists of transcripts of several hundred five-minute radio spots that Reagan broadcast after he left Sacramento in 1975; a series that ended the day he announced for president in 1979.

There can be no doubt whatever that these broadcasts express Reagan’s own personal, instinctive attitudes to the important foreign and domestic issues of the day, as opposed to cooler or more cautious or veiled attitudes he may have been advised to express then or later.

Reagan himself, in the last of the broadcasts, states that he wrote them all with his own hand. “I’ve scratched them out on a yellow tablet in airplanes, riding in cars, and at the ranch when the sun went down.”

They reveal him as perhaps a cleverer man than most reporters think he is. You may accept neither his premises nor his conclusions, but you will conclude, I submit, on reading these scripts, that Reagan writes better than you would expect. He has a sure sense of how an issue can be turned, sometimes twisted, to his advantage. And he has a real flair for one-liners.

The transcripts also reveal–and this is the heart of Dugger’s contention–a harder, nastier political style than that of the relaxed, tolerant personality Reagan has so carefully cultivated in the White House.

.. “He was presenting himself to the country as a moderate,” this is Dugger’s key charge, “but these transcripts show that deep down he was a hardline right-wing ideologue with fully formed and recently expressed prejudices on all of the outstanding issues of the day.”

.. The transcripts contain too much that supports this harsh judgment. All the clich,es of the Californian radical right are trotted out without inhibition.

Eighty per cent of air pollution,” the president believes, “comes not from chimneys and auto exhaust pipes but from plants and trees.” Banning pesticides like DDT leads to “political pollution.” Smoking pot leads to sterility.

.. The social attitudes revealed are uniformly indifferent to the old, the poor, the weak, and always coincide with the interests of the rich, corporations, and the financial Haves. The president is more moved by “the injustice done to Allan Bakke” than by the plight of those on welfare, and it is “demagoguery” to believe that income taxes should be progressive, that is, should increase with the size of incomes.

.. More surprising, and more unpleasant, is the president’s habit of using the sly, indirect way of the propagandist, using code language to suggest more than he quite says right out.

.. He does not explicitly advocate the death penalty, for example. That would sound too bloodthirsty. Instead he quotes with approval the father of a murdered man who says, “after two years the murderer of my son goes free, but my son is dead.” Because the late senator Joe McCarthy did not start to make his unsupported allegations about communists in government until after Alger Hiss had been charged with perjury, it does not follow, as Reagan implies, that those who oppose McCarthyism believe that the Cold War existed only in the minds of reactionaries.

.. There is a good deal of old-fashioned chauvinism to be found in the broadcasts. The Caribbean, Reagan concluded because Michael Manley was prime minister of Jamaica, “is rapidly becoming a communist lake in what should be an American pond.” What should be? The Caribbean basin? The Atlantic? The whole great gulf of ocean itself?

..”Maybe there is an answer–we simply do what’s morally right. Stop doing business with them. Let their system collapse.”

What if it doesn’t collapse?

.. Ronald Reagan is the leader of elements in the government who want the United States to obtain a first- strike capability

.. not all Reagan’s ideas are mistaken. His reaction against the New Deal, as Dugger says, would not have taken him to the White House unless it expressed authentic grievances, genuine second-thoughts about what had been accepted wisdom, real pain experienced by those who had not been preferred targets for the benevolence of the liberal system.

It is true. but that does not make the real Ronald Reagan, revealed behind the mask of amiability in his radio scripts, any less profoundly disturbing.

Putin Tells Voters He Would Save USSR if He Had a Time Machine and He Makes ‘Really Tasty’ Salad

Russian President Vladimir Putin, while fielding questions from supporters on Friday, said he is a mean salad maker and would prevent the 1991 collapse of the Soviet Union if he could travel back in time.

Unfortunately, our Western partners, having divided the USSR’s geopolitical legacy, were certain of their own incontestable righteousness having declared themselves the victors of the “Cold War.”

They started to openly interfere in the sovereign affairs of countries and to export democracy in the same way as in their time the Soviet leadership tried to export the Socialist revolution to the whole world.