02:39 GMT +3 hours30 July 2016
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A Saudi banker displays the new one hundred riyal banknote bearing the portrait of Saudi King Abdullah bin Abdul Aziz al-Saud at a bank in Riyadh, 05 June 2007

Out of Money: Saudi Arabia Shot Itself in the Foot by Dropping Oil Prices

© AFP 2016/ HASSAN AMMAR
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Riyadh has shot itself in the foot by adopting a predatory pricing policy in the oil market aimed at wiping its competitors out; now the House of Saud is reaping a whirlwind it sowed.

Back in 2014 Saudi Arabia decided to drop oil prices in order to expel Russia from the European and Asian oil markets and at the same time to deal a heavy blow to the US shale oil industry.

However, the Saudi royalty has apparently never heard of the old Chinese proverb that says: "Before you embark on a journey of revenge, dig two graves."

Thus, unsurprisingly, Riyadh's irresponsible oil gambling has boomeranged back and struck Saudi Arabia and its people, Russian political scientist Petr Lvov notes.

"The [House of Saud] decided that it has no equals in a position to punish Moscow for its persistent support of the Syrian people and its striving to develop bilateral relations with Iran and even Iraq, the states which could form a Shia arc capable of challenging, even destroying the tyranny of the Saudi regime," Lvov writes in his article for New Eastern Outlook.

Although Russia has been hit by the slump in oil prices it has remained "standing tall" and proven "to be more resilient that Saudi Arabia which produces nothing else besides hydrocarbons, and is fully dependent on cheap labor from Asia," the scientist stresses.

Lvov draws attention to the fact that in 2016 it turns out that Riyadh has nearly run out of money being unable to pay working migrants enough for their jobs. Other oil-dependent Gulf kingdoms are now in the same boat as Saudi Arabia.

"To make matters worse, migrant workers are becoming increasingly frustrated with the Persian Gulf states," he notes, warning that the proportion of local populations versus migrants in Gulf monarchies can result in social turmoil.

"In Qatar, there are seven migrant workers for every one native, while in the UAE this level hovers at a level of six-to-one. And it's safe to say that the army or police will find themselves helpless if hundreds of thousands of people take to the streets. In fact, a threat of 'revolution' hangs in the air," Lvov writes.

But it is not the whole story.

In one of his latest articles for the same resource, American political analyst Phil Butler posed a question whether Saudi Arabia's oil business is going bust.

According to the US political analyst, there are clear signs of Riyadh's running out of crude.

"The Ghawar Field, largest in the world, is running out after about 65 years of continuous production. Reports the Saudi Aramco will be starting the CO2-EOR process to extract the last of the field's oil, they tell us this field will be depleted totally soon," Butler emphasized.

In that instance, what does the future have in store for the Gulf kingdom?

"Saudi Arabia will return to an almost medieval third world status," the American analyst envisions.

Instead of kicking off a dangerous oil race Riyadh should have started to diversify its crude-centered economy.

To complicate matters further, with Iran back on the stage it will be more difficult for Riyadh to manipulate oil prices.

"However, once the sanctions against Iran have been withdrawn, Tehran is going to fight for its share in the market by increasing its oil production and export levels… With international markets being oversupplied, experts fear that we may witness a new round of price dumping," Lvov notes.

Apparently, Saudi Arabia cannot afford itself to continue its predatory pricing policy, since the very survival of the state is now at stake. Maybe that's why Saudi Arabia is taking steps toward cooperating with Russia, another world's leading oil producer, however incredible it sounds.

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Tags:
oil field, economic crisis, migrants, oil, money, Saudi Aramco, United States, Russia, Qatar, United Arab Emirates, Saudi Arabia
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  • Athanasios
    April futures for light crude rose from about $29 on Feb. 11 to about $39 on March 11. Apparently, the Saudis have gotten the message.
  • karlof1
    Twilight has certainly descended onto the desert. The Saudis didn't do much thinking before leaping into 3 cauldrons simultaneously and now risk coming undone by their own hand.
  • Oh, no! You mean those Saudis might have to start selling off their solid gold toilets, or a few of their Lear Jets to pay their bills! The shame of it all! Oh, wait a minute, that's right, they own half of the U.S. too, maybe they'll start with selling of some of those holdings. They don't want their privileged butts to rest on some ceramic toilet! NO, not THAT! What's this world coming to?
  • anne00marie
    Don't you just love home goals? Could not happen to a nicer nation.
  • anne00mariein reply tokarlof1(Show commentHide comment)
    karlof1, That is the problem with inbreeding, it does not provide intelligence.
  • jas
    I know of at least one person who knew it wouldn't work.
    www.youtube.com/watch?v=jD2rgM6k2GA
  • siberianhusky
    Let them go bankrupt first or even better wait for the internal revolt. Only then we will talk should Russia say.
  • siberianhuskyin reply toanne00marie(Show commentHide comment)
    anne00marie,
    Something I have been saying of those incestuous Royal dynasty of camel humpers there for a long time.
  • Marc Nonnenkamp
    Crude oil and natural gas will have more of a wild ride in the near future (as will many other commodities and asset classes). Both are now in what can be called "a bear market rally." In other words, a temporary upswing which will precede an even more destructive phase of the commodity market crash. Crude oil will likely rally at least as high as $56 per barrel before it begins a 5th motive wave down which will take it perhaps below $10 and even below $8 per barrel for WTI and Brent. Natural gas is also in a temporary upswing which may reach as high as $3 per mcf before the 5th motive wave down will take it to around $1 per mcf.
  • The one Who knows
    Too many players want to see oil price higher - also with shale being eliminated and maybe war breaking up with more than just Syrians dying the price has to eventually go up and Iran with their reserves cannot balance the market to 'new lows' we see now. independenttrader.org/will-oil-price-stop-falling.html
  • uranus.hertz
    Saudi has enough oil in reserve to supply the entire global demand for the next 20 years all by themselves. So by dumping oil on the markets now, especially when the demand for oil is in a trough, says they're cashing in the cow now before it has no value in the marketplace.

    And there's a techie trend too concerning maximizing performance in all oil-base powered products. Note in the US, they need to increase the gas taxes because auto fuel efficiency has eaten away at their road maintenance coffers ... the better the mpg, the less fuel you purchase. And as more engineering marvels unfold, efficiency goes up and demand falls.

    Now couple that with increased global attention to green technology and as the Saudi's themselves readily admit, by 2030 to 2050 the demand for oil will be so low it won't be worth the cost of extraction.
  • copius
    The Saudis are running out of oil. They have to dig deeper which is gonna be expensive. It's better and cheaper to extract oil from neighboring states Iraq, Yemen, Syria. Saudis are trying to sell worthless shares into it's dying oil industry. Who will be the suckers to rush in, only to find dried wells. Only fools rush in.
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