Mideast Turmoil: Follow The Oil, Follow The Money

In this scenario, time is running out for Saudi Arabia’s free-spending royalty and state– and for all the other free-spending oil exporters.

While there are numerous dynamics at work in the turmoil roiling Saudi Arabia and by extension, the Mideast, one way to cut to the chase is to follow the oil, follow the money. Correspondent B.D. recently posited a factor that has been largely overlooked in the geopolitical / fate-of-the-petrodollar discussions:

Perhaps the core dynamic is a technical one of diminished oil production. Here is Bart’s commentary:

“I think the Saudis may be quickly running out of profitable oil to produce/export.

I think they tried to over-produce for a while to damage the competition… and they now have production issues resulting from that. (As has happened in the past)

I think they may have recently slipped over the event horizon for being the world’s swing producer of ‘cheap-ish and abundant’ oil. That has huge ramifications for the global markets ability to quickly respond to supply/demand fluctuations.

I suspect they’re no longer cutting production voluntarily … they are now in the grip of a technically driven decline in output. (Why else begin selling off ARAMCO now?)

I doubt that many national economies can handle $70+ oil for very long… price will be limited by the ability of the consumers to pay. What I assume should happen is relentless severe volatility in the absence of a big swing producer that can open up or shut-in production with comparative ease.”

Thank you, B.D. Let’s start with what’s well-established about Saudi oil production:

1. The days of sticking a straw in the sand and oil gushing out are long gone. Oil production now depends on costly technologies such as pressurizing the wells with seawater, CO2, etc.

2. The soaring population of Saudi Arabia is dramatically increasing domestic consumption of the Kingdom’s oil, reducing the amount of oil available for export.