​The Saudi oil war against Russia, Iran and the US

Pepe Escobar
Pepe Escobar is an independent geopolitical analyst. He writes for RT, Sputnik and TomDispatch, and is a frequent contributor to websites and radio and TV shows ranging from the US to East Asia. He is the former roving correspondent for Asia Times Online. Born in Brazil, he's been a foreign correspondent since 1985, and has lived in London, Paris, Milan, Los Angeles, Washington, Bangkok and Hong Kong. Even before 9/11 he specialized in covering the arc from the Middle East to Central and East Asia, with an emphasis on Big Power geopolitics and energy wars. He is the author of "Globalistan" (2007), "Red Zone Blues" (2007), "Obama does Globalistan" (2009) and "Empire of Chaos" (2014), all published by Nimble Books. His latest book is "2030", also by Nimble Books, out in December 2015.
A fisherman pulls in his net as an oil tanker is seen at the port in the northwestern city of Duba.(Reuters / Mohamed Al Hwaity)
Saudi Arabia has unleashed an economic war against selected oil producers. The strategy masks the House of Saud’s real agenda. But will it work?

Rosneft Vice President MikhailLeontyev; “Prices can be manipulative…Saudi Arabia has begun making big discounts on oil. This is political manipulation, and Saudi Arabia is being manipulated, which could end badly.”

A correction is in order; the Saudis are not being manipulated. What the House of Saud is launching is “Tomahawks of spin,” insisting they’re OK with oil at $90 a barrel; also at $80 for the next two years; and even at $50 to $60 for Asian and North American clients.

The fact is Brent crude had already fallen to below $90 a barrel because China – and Asia as a whole – was already slowing down economically, although to a lesser degree compared to the West. Production, though, remained high – especially by Saudi Arabia and Kuwait - even with very little Libyan and Syrian oil on the market and with Iran forced to cut exports by a million barrels a day because of the US economic war, a.k.a. sanctions.

The House of Saud is applying a highly predatory pricing strategy, which boils down to reducing market share of its competitors, in the middle- to long-term. At least in theory, this could make life miserable for a lot of players – from the US (energy development, fracking and deepwater drilling become unprofitable) to producers of heavy, sour crude such as Iran and Venezuela. Yet the key target, make no mistake, is Russia.

A strategy that simultaneously hurts Iran, Iraq, Venezuela, Ecuador and Russia cannot escape the temptation of being regarded as an “Empire of Chaos” power play, as in Washington cutting a deal with Riyadh. A deal would imply bombing ISIS/ISIL/Daesh leader Caliph Ibrahim is just a prelude to bombing Bashar al-Assad’s forces; in exchange, the Saudis squeeze oil prices to hurt the enemies of the “Empire of Chaos.”

Yet it’s way more complicated than that.

Sticking it to Washington

Russia’s state budget for 2015 requires oil at least at $100 a barrel. Still, the Kremlin is borrowing no more than $7 billion in 2015 from the usual “foreign investors”, plus $27.2 billion internally. Hardly an economic earthquake.

Besides, the ruble has already fallen over 14 percent since July against the US dollar. By the way, the currencies of key BRICS members have also fallen; 7.8 percent for the Brazilian real, 1.6 percent for the Indian rupee. And Russia, unlike the Yeltsin era, is not broke; it holds at least $455 billion in foreign reserves.

The House of Saud’s target of trying to bypass Russia as a top supplier of oil to the EU is nothing but a pipe dream; EU refineries would have to be reframed to process Saudi light crude, and that costs a fortune.

Geopolitically, it gets juicier when we see that central to the House of Saud strategy is to stick it to Washington for not fulfilling its “Assad must go” promise, as well as the neo-con obsession in bombing Iran. It gets worse (for the Saudis) because Washington – at least for now – seems more concentrated in toppling Caliph Ibrahim than Bashar al-Assad, and might be on the verge of signing a nuclear deal with Tehran as part of the P5+1 on November 24.

On the energy front, the ultimate House of Saud nightmare would be both Iran and Iraq soon being able to take over the Saudi status as key swing oil producers in the world. Thus the Saudi drive to deprive both of much-needed oil revenue. It might work – as in the sanctions biting Tehran even harder. Yet Tehran can always compensate by selling more gas to Asia.

So here's the bottom line. A beleaguered House of Saud believes it may force Moscow to abandon its support of Damascus, and Washington to scotch a deal with Tehran. All this by selling oil below the average spot price. That smacks of desperation. Additionally, it may be interpreted as the House of Saud dithering if not sabotaging the coalition of the cowards/clueless in its campaign against Caliph Ibrahim’s goons.

Compounding the gloom, the EU might be allowed to muddle through this winter – even considering possible gas supply problems with Russia because of Ukraine. Still, low Saudi oil prices won’t prevent a near certain fourth recession in six years just around the EU corner.

 Reuters / Hamad I Mohammed

Go East, young Russian

Russia, meanwhile, slowly but surely looks East. China’s Vice Premier Wang Yang has neatly summarized it; “China is willing to export to Russia such competitive products as agricultural goods, oil and gas equipment, and is ready to import Russian engineering products.” Couple that with increased food imports from Latin America, and it doesn’t look like Moscow is on the ropes.

A hefty Chinese delegation led by Premier Li Keqiang has just signed a package of deals in Moscow ranging from energy to finance, and from satellite navigation to high-speed rail cooperation. For China, which overtook Germany as Russia’s top trading partner in 2011, this is pure win-win.

The central banks of China and Russia have just signed a crucial, 3-year, 150 billion yuan bilateral local-currency swap deal. And the deal is expandable. The City of London basicallygrumbles- but that’s what they usually do.

This new deal, crucially, bypasses the US dollar. No wonder it’s now a key component of the no holds barred proxy economic war between the US and Asia. Moscow cannot but hail it as sidelining many of the side effects of the Saudi strategy.

The Russia-China strategic partnership has been on the up and up since the “epochal” (Putin’s definition) $400 billion, 30-year gas dealof the century” clinched in May. And the economic reverberations won't stop.

There’s bound to be an alignment of the Chinese-driven New Silk Roads with a revamped Trans-Siberian railway. At the Shanghai Cooperation Organization (SCO) summit last month in Dushanbe, President Putin praised the “great potential” of developing a “common SCO transport system” linking “Russia’s Trans-Siberian railway and the Baikal-Amur mainline” with the Chinese Silk Roads, thus “benefiting all countries in Eurasia.”

Moscow is progressively lifting restrictions and is now offering Beijing a wealth of potential investments. Beijing is progressively accessing not only much-needed Russian raw materials but acquiring cutting-edge technology and advanced weapons.

Beijing will get S-400 missile systems and Su-35 fighter jets as soon as the first quarter of 2015. Further on down the road will come Russia’s brand new submarine, the Amur 1650, as well as components for nuclear-powered satellites.

Reuters / Hamad I Mohammed

The road is paved with yuan

Presidents Putin and Xi, who have met no less than nine times since Xi came to power last year, are scaring the hell out of the “Empire of Chaos.” No wonder; their number one shared priority is to dent the hegemony of the US dollar – and especially the petrodollar - in the global financial system.

The yuan has been trading on the Moscow Exchange - the first bourse outside of China to offer regulated yuan trading. It’s still at only $1.1 billion (in September). Russian importers pay for 8 percent of all Chinese goods with yuan instead of dollars, but that’s rising fast. And it will rise exponentially when Moscow finally decides to accept yuan under Gazprom’s $400 billion “gas deal of the century.”

This is the way the multipolar world goes. The House of Saud deploys the petrodollar weapon? The counterpunch is increased trade in a basket of currencies. Additionally, Moscow sends a message to the EU, which is losing a lot of Russia trade because of counter-productive sanctions, thus accelerating the EU’s next recession. Economic war does work both ways.

The House of Saud believes it can dump a tsunami of oil in the market and back it up with a tsunami of spin – creating the illusion the Saudis control oil prices. They don’t. As much as this strategy will fail, Beijing is showing the way out; trading in other currencies stabilizes prices. The only losers, in the end, will be those who stick to trade in US dollars.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.