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| Israel-Palestine-Jordan |
| How will the sharp drop in oil prices affect Israel's relations with its neighbors? |
| 2014-12-09 |
| Oil, once a commercial ace, strategic prince and political joker, is on the skids Hardly half a year since piercing the $100/barrel ceiling and peaking at $103, crude prices this week cracked the $65 floor, as some analysts predicted a $30 barrel sometime next year. Such dives happen routinely in financial markets, but this one is different -- because oil prices vector economic, industrial and geopolitical pushes and pulls more tellingly than any commodity, currency, bond or share. And what these vectors now indicate is that along with its declining financial value, oil is also losing its economic status and political clout. Yes, recent data indicates that the global economy's recovery in the aftermath of the 2008 meltdown has ended. With China's growth slowing and Germany's nearly halting, the markets sense a worldwide decline in demand, which in turn means lower oil sales -- whether to factories, airlines or households. Yet the market mayhem is fed not only by reduced demand but also by expanded supply, in the wake of recent years' production of shale in the US. The technique that enables extraction of oil hidden within rocks has intensified oil production dramatically in the US, so much so that Uncle Sam has recently become a net exporter of crude. Meanwhile, in the aftermath of the Cold War, Russian and Azerbaijani oil has been reaching the developed world, thus further expanding supply. In other words, while the global economy's cyclical dynamics reduced demand for oil in recent months, industrial developments increased its supply. Moreover, the success of shale production is now making other countries follow America's example -- most notably China, whose rapidly growing energy consumption fueled oil's meteoric appreciation last decade, from nearly $10 at the turn of the century to $147 in 2008. Beijing's stated aim, to develop its own shale industry, is a strategic threat to its oil suppliers in the Middle East. This is what OPEC's foreign ministers had on their minds during their emergency meeting last month in Vienna, amid expectations they would cut production, and thus stem crude's depreciation. Such were the expectations. Instead, OPEC announced it would not cut production, and thus sent prices even further down -- as if to give Americans a special gift just as they gathered around their Thanksgiving tables. OPEC, to be sure, had other aims in mind, both political and industrial -- but they were all doomed to fail. Cutting production has been OPEC's lethal weapon ever since 1973, when its Arab members, led by Saudi Arabia, threatened in the middle of the Yom Kippur War to pump less crude unless the US stopped emergency arms shipments to Israel. The markets panicked and oil soared within less than a year from $3 to $12/barrel. The energy market had therefore transformed from a regular meeting place of buyers and sellers into a hypersensitive seismograph of political turmoil in the Middle East. And so, when revolution gripped Iran, oil prices more than doubled from less than $16 to nearly $40/barrel; when Iraq invaded Kuwait, prices journeyed from $17 to $36. That was then. Now, despite the Middle East being ablaze from Libya to Iraq, and despite Iranian oil's near-complete absence from the markets due to sanctions, prices are plunging. In other words, the markets have lost fear of the Middle East, and now ignore its caprice. Faced with OPEC's failure to cut production, analysts have been offering theories for its behavior, like Talmudic scholars in the face of an exegetic enigma. |
| Posted by:g(r)omgoru |
| #2 Why didn't OPEC cut supply, particularly at the request of so many members? Because Saudi Arabia is willing to do whatever it has to do to keep the west, and the US, in a dependent position. They will cut prices like their lives depend on it, because they do. Ask yourself: would Gulf War 1 & 2 have happened if we didn't need their oil then? Once we break the dependency chain, they're toast, and they know it. |
| Posted by: ed in texas 2014-12-09 08:52 |
| #1 Key for Israel is that she needn't depend on hot enemies or cold friends for her supply. It's a nice extra that, even at a lower price point she can supply neighbours Egypt and Jordan, when their brotherly Arab countries do not, supporting their viability. Making profits on sales elsewhere is a bonus to the economy, sure, but overall Israel is doing just fine, and China, Russia, and other points east are very interesting in expanding trade. That the Palestinians choose to be a captive market against the imaginary day when they inherit the supply is immaterial, as they generally don't pay their bills anyway. |
| Posted by: trailing wife 2014-12-09 08:33 |