The true outcome of the oil war: the great Saudi defeat

When the process, later called the “oil war”, was still at the very beginning, forecasts were heard in many world media that the United States and Saudi Arabia would undoubtedly win this confrontation. Riyadh, having entered a rage, began to literally “flood” consumers with hydrocarbons at the most dumping prices. In the end, this was the “last straw” that led to the total collapse of exchange prices for “black gold”.

All the same media began to trumpet about his “complete and unconditional victory over the Russians,” which now only remains to stop production altogether. Better yet, get out of the world’s energy markets, hiding in the dens of our own tame bears ... How did it all end in reality?

New taxes instead of a new “vision”

In truth, reading the hasty “predictions” and “predictions” cited above in the shortest translation initially delivered real pleasure to people who own the situation and not perceive it at the level of rumors and gossip. Well, it’s very nice to later recall the unfortunate “Nostradamus” their enchanting hits with a finger in the sky! And finally, for this the most appropriate moment has come. For today, when it is still very, very far from the end of the oil crisis, you can clearly see what kind of “victory” the “hot Saudi guys” won. It’s hard to say who they marked in the first place, starting unprecedented dumping in history — the Americans with their shale mining, or, nevertheless, in our country, which didn’t want to go on about their absurd whims, but Riyadh managed to destroy just your own the economy.

However, before starting a detailed analysis of what exactly the oil sheikhs have tricked into their heads, we should recall some fundamental points regarding Saudi Arabia. First of all, its budget, and, accordingly, the welfare of the citizens of this country depends on the export of hydrocarbons to a much greater extent than is observed in Russia, which many foreign (and domestic too) “experts” simply adore to blame on the “oil needle”. In our country, according to the Ministry of Finance, the share of funds from energy exports ranges from 36% to 40% of domestic government revenues. In Saudi Arabia, the same figure is 90%. Actually, starting any “wars” with such a ratio was, perhaps, not entirely reasonable, but what has been done is done.

Riyadh, however, is well aware of all the disadvantages of its own full involvement in the extraction and sale of "black gold" and strives to get rid of it as much as possible. It is not for nothing that the country's crown prince Mohammed bin Salman proclaimed the implementation of the Vision-2030 program (Vision-2030) as a priority for its development, which, on its ambitiousness, went to the brink of fiction. What was worth only one NEOM plan to build literally from scratch in the middle of the desert in the province of Tabuk a “supercity of the future”, in which houses were supposed to be “smart”, taxis were flying, and the role of maintenance staff was planned to be assigned to robots. Such a miracle, according to Riyadh, was supposed to attract legions of tourists to the country, which would at least somehow diversify the economy. Now, of course, nothing of the kind can be realized for the banal reason of the lack of money. No matter how many "clever men" broadcast about "super-cheap" (at the cost of production) of Saudi oil, but in reality the state needs an export price of $ 80 per barrel - and this is at least to "go to zero."

In order for the whole financial and economic system of the country to not collapse overnight like a house of cards, its leadership is forced to take extremely unpopular steps. So, VAT increases from 5% to 15%, and “subsistence payments” to some categories of the population cease altogether. It should be noted especially about them. In itself, the value-added tax was forcedly introduced by Riyadh, which until then did not want to hear about anything like this, in 2018. Then, for all civil servants, a benefit “for the high cost of living” in the amount of 1000 rials or $ 267 in recalculation, designed to compensate for the new fiscal policies rising prices, primarily - for fuel, which the Saudis are used to seeing almost free.

“We are experiencing the worst crisis in history ...”

These words belong to none other than the Minister of Finance of Saudi Arabia, Mohammed al-Jadaan. He was forced to assume the unenviable role of a herald of “painful, but necessary” innovations that would hit the wallet of every citizen of the country. What are the "cities of the future" ?! Al-Jadaan’s office has already announced the launch of a program to “optimize public finances” from June 1, which, in particular, envisages cutting costs for reform projects by 100 billion reais or 26 billion dollars. It's about time - after all, the state budget deficit has already exceeded $ 9 billion. The foreign exchange reserves of Riyadh over the past couple of months have decreased by $ 27 billion and have fallen to a record level since 2011. The local Ministry of Finance forecasts a budget deficit of 16,3% of GDP at the end of the year. In turn, the IMF is confident that in the best case, the country's economy will shrink in 2020 by 2.3% -2.5%. There are, however, more gloomy forecasts - some analysts believe that Riyadh's public debt this year will increase to 31,6% of GDP, gold reserves will fall by another $ 47 billion, and GDP will fall by 5%.

This is exactly what real, rather than far-fetched, “oil dependence” looks like - all the troubles described above stem from the fact that Saudi revenues from “black gold” decreased by a quarter (up to $ 34 billion) compared to the same period last year. Exactly in the same proportion, the profit of the state oil company Saudi Aramco fell - that’s all arithmetic. Riyadh has no choice but to get deeper and deeper into the debt hole - they plan to bring the level of external borrowing to 58 and a half billion dollars this year alone. So far, the country has placed Eurobonds worth $ 19 billion in global financial markets in two stages, which are in very good demand, but how long will this last?

The near foreseeable future does not promise Saudi Arabia (as, incidentally, alas, to all other oil-producing countries) no positive prospects. During the peak of their own expansion into the markets (primarily European, from which the Saudis tried to “knock out” Russian oil), the volume of “black gold” in the country was swollen from 9.7 to an unprecedented 13 million barrels per day. Today, the situation is forcing diametrically opposed actions: on May 11, Riyadh Energy Minister Abdel Aziz bin Salman Al Saud announced that the country would reduce the amount of energy pumped out of the bowels to less than 7.5 million barrels per day, “turning the crane” by another million barrels per day in addition to the obligations assumed under the OPEC + transaction. This is the lowest figure since 2001. Who claimed that “only Russia was forced to reduce production”, and the Saudis won’t do such a thing ?! Saudi Aramco has completely stopped trying to “sell” anyone its own raw materials at prices lower than market prices, probably cursing the moment when it began to do so a thousand times. What's the use? According to reports, in the United States, tankers that have already arrived there are experiencing enormous problems with unloading, flooded to the brim with useless “black gold” to the top. Instead of the usual 4-5 days, usually spent on pumping out the contents of their holds, the "carpenters" are forced to hang out on the American coast for two weeks, or even longer. And the reason here is not some “sabotage”, but the banal absence of small vessels for transporting hydrocarbons ashore. After all the supertankers that had turned into floating oil storage tanks were filled with “surplus” oil, it was the turn of vessels with a capacity of 800, or even 600 thousand tons. Every day, tanker idle time flies into Riyadh oil companies in huge amounts of money, especially given the fact that their freight prices have soared lately to completely space heights. But there is no way out of the situation and is not yet in sight ...

Generally speaking, the issue of relations with the United States was another bitter lesson that the current crisis has taught Saudi Arabia. Not only that, relying on the Americans as the traditional and most reliable market, the Saudis in April increased their energy exports to this country four times - and found themselves in the situation in which they found themselves. As far as we know, about two dozen Saudi tankers are now heading to the US shores, to see which, to put it mildly, they are not thirsty ... Riyadh completely relied on Washington in “taming Moscow”, and what did it get in the end? Recently, the details of the “intimate” conversation between Crown Prince Mohammed bin Salman Al Saud and Donald Trump have become known, during which the head of the White House “pushed the true” path of his interlocutor on the issue of reducing oil production. Not only that, the conversation was conducted in such tones that the changed prince demanded that all those present immediately leave the room ... As it became known, the US president, not at all sparing the pride and tender feelings of the crowned person, put Al Saud before a choice: either he abruptly and tangibly “turn on the crane”, or a maneuver called “Yankees go home” is performed by 2 and a half thousand US troops located in Saudi Arabia, and together with the Patriot air defense batteries served by them. Doesn’t it now that the “defense deal of the century” for supplying Riyadh with US $ 2017 billion worth of American weapons to Riyadh by the same Trump and King Salman bin Abdel Aziz Al Saud in 100 looks somewhat different? Frankly speaking, it looks like a noose that has gripped the throat of some of the many monarchs who have thought of their importance to Washington?

Of course, the economy of Saudi Arabia is still very, very far from a catastrophe. The situation with the coronavirus there is developing far from the best scenario - at the moment, about 43 thousand infected are known, which is certainly a lot for such a country (in neighboring Qatar, the figure is almost half that in Kuwait). Fortunately, mortality is low - just over 260 cases. However, the Saudi Arabian pandemic (where contrary to the tales of "universal prosperity", at least 20% of the population lives below the poverty line) will certainly add to the economic problems. What definitely suffered a complete collapse is Riyadh's desperate attempt, having organized an “oil blitzkrieg”, to take a privileged place in the world energy markets at the expense of their other participants, primarily Russia. Well, sincerely wishing to survive the difficult times for the inhabitants of this country, we hope that its rulers will draw the right conclusions.
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    1. 123 Offline 123
      123 (123) 15 May 2020 19: 44
      Clowns from Russia and articles written by clown!

      Not satisfied? Go read Arabian storytellers. Scheherazade is the best oil market analyst, good I recommend you enjoy it. yes