From Tyler Durden at zerohedge.com:
Any weakening of Russian support for Mr. Assad could be one of the first signs that the recent tumult in the oil market is having an impact on global statecraft. Saudi officials have said publicly that the price of oil reflects only global supply and demand, and they have insisted that Saudi Arabia will not let geopolitics drive its economic agenda. But they believe that there could be ancillary diplomatic benefits to the country’s current strategy of allowing oil prices to stay low — including a chance to negotiate an exit for Mr. Assad.
That’s a quote from a New York Times article that ran in February of this year.
At the time, we pointed to the piece as evidence that yet another conspiracy “theory” has become conspiracy “fact” as it effectively served to validate (to the extent The New York Times is validation) the thesis that at the end of the day, this is all about energy.
If the Saudis could use oil prices to force Moscow into ceding support for Bashar al-Assad in Syria, then the West and its regional allies could get on with facilitating his ouster by way of arming and training rebels. Once Assad was gone, a puppet government could be installed (after some farce of an election that would invariably pit two Western-backed candidates against each other) then Riyadh, Doha, and Ankara could work with the new government in Damascus to craft energy deals that would not only be extremely lucrative for all involved, but would also help to break Gazprom’s iron grip on energy supplies to Europe.
Those are the “ancillary diplomatic benefits” mentioned in The Times piece.
Only it didn’t work out that way.
Instead, Russia just kind of rolled with the economic punches (so to speak) and while there’s probably only so much pain Moscow can take between low oil prices and Western sanctions, Putin has apparently not yet reached the threshold.
Meanwhile, the Saudis have found that it’s taking longer than expected for Riyadh to realize another expected benefit from driving crude prices into the floor. Bankrupting the relatively uneconomic US shale space would go a long way towards solidifying Saudi Arabia’s market share, but thanks to wide open capital markets, Riyadh has effectively gotten itself into a war with the Fed. The longer ZIRP persists, the longer otherwise insolvent US producers can stay in business. In short: until the cost of capital starts to rise, there will likely still be investors of some stripe willing to finance some of these drillers.
Additionally, Riyadh decided to fight a proxy war with Iran in Yemen and combined with the necessity of maintaining the status quo in terms of the lifestyle of the everyday Saudi, the kingdom is literally going broke as the budget deficit is set to come in at an astounding 20% of GDP and the current account plunges into the red as well.
As for the Russians, not only did they not abandon their support for Assad, they in fact struck up a closer alliance with Iran, whose oil supply threatens to add to the global deflationary supply glut once sanctions are fully lifted (by the way, Sunday is “Adoption Day” for the nuclear deal), on the way to restoring the Assad regime in an all-out military invasion.
To continue reading: Saudis Poke The Russian Bear
