The Price of Oil Collapses Whilst Imperialist Competition Rises

In an economic crisis that shows no sign of ending as well as in the tragic grip of an imperialist barbarism that never ceases

According to the classical analysis of neo-liberalism nothing unusual is happening. Indeed, all theories trying to explain what is behind the price fall are doomed to failure or, at best, are useless suggestions that do not belong to the real world but take refuge in the much maligned farce of conspiracy theory. According to neo-liberal theory the decline in crude oil prices, which went from $120 to less than $55 a barrel in less than no time, is merely the result of the usual laws of the market and its capacity for self-regulation. The crisis, the decline in production and, therefore, in energy consumption have affected old Europe, Japan and China. The latter, while increasing its capitalist development, now has lower growth indices than in the recent past. It’s therefore natural that the demand for energy commodities has decreased, and that prices should do likewise. So there is no problem, no struggle between the imperialist powers, at most it is just the usual market competition so dear to neo-liberalism.

Such an analysis is a waste of time and does not deserve comment except to say that banality is the mother of all stupidities. The problem is not simply that decreased consumption is lowering prices, but the fact that OPEC has decided not to cut the supply of oil in order to support the price, as it has done many times in the past.

One theory suggests that there is a ferocious attack on the oil market by the US and Saudi Arabia against such deadly enemies as Russia and Iran. Certainly the decline in crude oil prices affects all producers and especially those whose oil exports are the largest component of their economy such as Russia, Iran and Venezuela. It is also obvious that the US is making a strong attack on Russia both through sanctions and diplomacy to weaken its economic strength (in the oil sector in particular) in the political confrontation in Europe and beyond. Likewise Saudi Arabia has every interest in penalising a rival like Iran in the economic, political and religious fields in order to continue its monopoly over religion and the cult of the god oil in the region, as well as the resulting lucrative income that comes from it. This picture would fit (and in part it does fit) if it were not for the fact that, the US and Saudi Arabian alliance has been replaced by competition. Their reciprocity of immediate and strategic interests has been replaced by imperialist selfishness in terms of oil exports, domination of the energy sector, and their respective roles in the Middle East. So the coupling of the USA with Saudi Arabia against Russia and Iran is a bit confusing as well as inaccurate. The framework continues to be one of imperialist confrontation. That interpretation is true but the line up is based on a more complex logic and set of interests.

Everything started to change with the discovery and exploitation of shale gas in North America. The US, until the early years of this decade, imported 60% of its oil energy needs. After nearly four years of shale gas, according to the major research centres in Washington, that energy dependence dropped to 20%. The same sources suggest the attainment of full energy independence in 2050 and, after that the possibility that the US will even become an exporter, leading production and distribution of oil worldwide.

Leaving aside for a moment the validity of such predictions, by avoiding mention of the persistent struggle of ecologists against extraction methods (fracking) that would leave in the ground at least 30% of the chemicals used with all the risks of pollution of the soil and aquifers that implies, there remains the concern of many engineers about the high costs of extraction and refining, as well as this supposed energy independence. Many geologists in the industry and financial experts of the Post Carbon Institute and the Energy Policy Forum have serious doubts that hydraulic fracturing is an economically competitive and environmentally sustainable technique. Even the much-trumpeted energy independence, which according to the most optimistic forecasts would be achieved at the earliest by 2050, appears to be more a mirage than a hope. It is much easier to see shale gas as yet another speculative bubble in the US. In fact, thanks to the interest of speculative financial capital on Wall Street, data on US reserves of shale gas may have been exaggerated 400%.

Almost certainly hidden behind the euphoria about the exploitation of shale gas deposits lies the fact that current production comes from just two deposits of shale oil (the Bakken Shale in North Dakota and Montana and the Eagle Ford deposit in Texas), whose production peaks are concentrated in very limited areas, and five other fields of shale gas.

Also the concern of geologists is that, in 10 years, fractured hydrocarbons will run out or they would only be extracted at increasing cost and higher investments in technology making further production uneconomical. In addition, the present cost of production means there is no economic advantage in shale gas if the selling price on the international market falls below $75 a barrel.

But for the economy of Saudi Arabia the alarm bell are also ringing. In fact, the Saudi kingdom as well as being the main oil producing country in terms of exports, active and exploited deposits, has for decades been the largest supplier of oil to the United States. It goes without saying that any energy independence of the United States, even if only feared, would pose serious problems to Saudi Arabia, both in economic terms as well in the politics of the alliance. Not least, it would have a significant impact on its ability to continue to play a leading role in the field of oil revenues within OPEC, and to act as political leader in the Middle East given the negative effects of the reduction of its specific weight in terms of imperialist activity.

Breaking down this geopolitical data, we see the main interest of the Saudi monarchy stands in opposition to the American perspective of energy self-sufficiency based on the exploitation of shale gas. How? By pushing this project to its critical limit, namely the high extraction cost, that does not allow the sale of shale gas at below $75 a barrel.

It is no coincidence that at the OPEC meeting in November Saudi Arabia worked diplomatically, and with great determination, to convince its ally-competitors Qatar, Kuwait, the UAE and a recalcitrant Iran to agree not to the raise the price of crude oil, which in the Saudi strategy, should not go back above $75 per barrel.

Unofficial sources report that Russia itself, through a Lukoil bosses’ statement supported by the Putin Government, has also given its consent (Russia is not part of OPEC) to the Saudi proposal for a low price of crude oil. This is not without some doubts and misgivings on their part because the low price of oil would also hit the Russian economy which, for some years, has based 60% of its GDP on the export of gas and oil. But even if it were true, other factors, may also be involved here to offset the initial economic disadvantage. 1) Russia, like Saudi Arabia, both victim and executioner in these imperialist contradictions, has an interest in putting a spoke in the wheel of the US attempt to become self-sufficient from an energy point of view and, ultimately, to be among the largest exporters of oil and gas. This would place it in direct competition with the interests of Moscow, which at present, is the world's largest exporter of oil and gas taken together. In short, a financial sacrifice over the low cost of crude oil for just a few years, could be worth it just to upset the shale gas project assuming the Kremlin has got its sums right and they are not upset by any other unwanted collateral damage. 2) Russia, despite having many internal problems and international economic and political life, due to the sanctions and the difficult relationship with the West, has renewed lucrative economic contracts based on the export of hydrocarbons to Europe and, above all, it has recently created new ones with China, despite the determined opposition of Washington on both fronts. 3) Russian exports are mainly based on gas, while those of oil represent a relatively low level, so the dreaded economic damage could, after all, be quite contained and, in the short term, bearable.

Russia with 44 trillion cubic metres holds the largest gas reserves in the world. While oil reserves amount only to 10 billion tons. No coincidence that Gazprom, a state-controlled company, is by far the most important major in the Russian energy sector, well above the Lukoil and all other companies operating in the oil sector.

For Saudi Arabia, things are more simple and straightforward. In addition to trying to defuse the threat of shale gas, the concerns of Riyadh are with Washington shifting in its alliances with friendly countries and in its conflicts with opponents. The idea to keep down the price of oil has the second objective of penalising Iran's new course. Iran must not be allowed to escape sanctions. Instead let it suffer the consequences of lower oil prices, the most effective means to eliminate a dangerous competitor in all the areas mentioned above. But US policy towards Iran is changing. For the Obama administration to draw the country of the Ayatollahs within its orbit, or at least to reduce the virulence of its hostility, would be a start in stealing one of the largest producers of oil and gas from Russian influence, remove it from collaboration with the Iraqi oil industry and make it easier to loosen the energy ties that bind Washington to Saudi Arabia. This appears to be the political drift of the US. The nuclear issue scarcely comes into it, and the Tehran regime has realised this new situation by jumping on the bandwagon in declaring its readiness to all controls on its nuclear centrifuges and, for added value, is prepared to assist in the Coalition against IS, sending its fighter jets into Syria against the military bases of the "Black Caliph". In addition, an Iran without sanctions, as a US ally would have a new role to play in the whole Caspian area and would attract know-how, more investment, increasing its production and the ability to drill new wells, thus questioning Saudi supremacy in both energy and its geopolitical role. The reckoning is almost done. If the US can do without Saudi oil, if Iran comes into the American sphere in some way, the future of Riyadh will be gloomy. So that's another good reason for the Saudi decision to operate within OPEC to keep down the price of oil against American plans and against the possible "rehabilitation" of Iran.

It goes without saying that Russia will play its own game pretending that it is able to withstand it, both on the table of falling crude oil prices to harm the United States, and in support of Iran in an effort to deafen it to the American sirens, which are currently singing their sweet melodies of deceit more than ever.

All this is only possible, within the framework of imperialist moves over the prices and production quantities of oil and gas. Meanwhile in the background, accelerating these movements, attacks and retreats, remains the economic crisis that shows no sign of getting out of the hole into which it has plunged the world economy devastating the living standards of hundreds of millions of workers.

The games imperialism usually plays, involves the breaking of old alliances, and the creation of new, temporary and opportunistic ones. They ferociously pursue their interests via trade wars, then military wars, with all the barbarity of human and environmental devastation they bring. Saudi Arabia is playing its game, Iran is seizing its opportunity, Russia is throwing in its best cards. The US is accelerating the drive for energy independence knowing that if things go wrong, or not in the right direction, it can console itself with trying to keep the dollar as the coefficient of international trade, including oil, to counter the attacks of the euro and Sino-Russian manoeuvres to undermine the dominance of the US dollar. Meanwhile, for oil, for the means of marketing it, for its price, wars are being fought in Ukraine, Syria and Iraq. Everyone is taking part in the oil war, from Russia to the US, from Europe to the Arab countries that are part of the anti-IS Coalition, They now fight IS with the same determination and speed with which they brought it into being. Meanwhile, tens of thousands of civilians have died, millions of displaced Syrians and Iraqis are on the brink of a humanitarian emergency. They are in danger of dying of hunger and now, with the approach of winter, of cold. Other desperate workers, proletarians, deceived by their respective bourgeoisies are fighting against each other in a murderous game that sees them all end as losers, regardless of which side they are on.

Imperialism can carry on playing these games as long as it likes unless its class antagonist rallies round the flag of anti-capitalism, struggles against all nationalist solutions, and rejects being a tool politically conditioned by their own bourgeoisie, to be slave to imperialist manoeuvres and the barbarism they produce.


December 2014

Wednesday, December 10, 2014


As this subject seems to be that of the Durham meeting of Dec 17, 2014, and as Durham is a long way from some readers, would the website provide a report on how the meeting goes ?

We briefly discussed the developing crisis in the NHS and the meaning of "activism" but spent about 2 hours discussing the relationship between Saudi Arabia and the US since 1945 and the consequences of that for today's IS movement and the latest turbulence on the oil market. It was agreed that this would be written up as an article in Revolutionary Perspectives 05 which is due out in January 2015.

Thank you for your news report of Thu, 2014-12-18 re the Durham Meeting of Dec 2014.

The article above was updated and the title changed on December 29.