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Claude Salhani

Claude Salhani

Claude Salhani is the senior editor with Trend News Agency and is a journalist, author and political analyst based in Baku, specializing in the Middle…

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Want To Hurt Russia? Lower The Price Of Oil

Want To Hurt Russia? Lower The Price Of Oil

Why would the oil producers, who have over the years raised the price of oil at every opportunity they got suddenly agree to drop the price from roughly $120 a barrel to about $80 a barrel?

Saudi Arabia, the largest producer of oil and gas in the Middle East said the revision of the price of oil downwards was done in order to adjust the markets. Hmmm, have they indeed?

Perhaps a better explanation can be found in analyzing who stands to gain the most and who stands to lose the most from this sudden shift in oil prices.

The obvious winners would be consumers, where prices at the pump will reflect these changes most clearly. Just as obviously OPEC, the organization that regulates those prices, did not want to slash prices out of the kindness of their hearts. So what is really behind this move?

Related: APEC 2014: Russia Tries To Leave Europe Behind

Let us look first at who the major oil producers are today: Saudi Arabia, Qatar, the United Arab Emirates and the United States, as well as Russia, Iran and the Islamic State.

Of those, we can make a clear distinction between the first four countries who have solid economies and ample amounts of cash reserves and who can sustain a sharp drop in revenue when oil is sold at a lower price. They are also the same group of countries currently leading the fight against the so-called Islamic State.

The big losers in this case will clearly be the last three countries on that list: Russia, Iran and the Islamic State.

Coincidentally, these countries are currently engaged in highly controversial conflicts and are facing opposition from the United States and the West.

Russia is involved in Ukraine’s civil war, supporting the separatists in a highly criticized move condemned by the United States and its Western allies. In response, the allies began to impose sanctions as punishment and, given the ruble’s recent downturn, Russia’s credit rating being slashed and desperate gas deals in the Asian markets, it seems that the sanctions have, thus far, been highly successful.

Iran is already suffering from sanctions imposed by the West for its pursuit of a nuclear program, with many countries still sceptical of Iran’s intentions, namely whether the technology will be used for military applications or purely civilian ends, as Iran has repeatedly claimed. Additionally, the Islamic Republic is involved in the civil war in Syria, supporting President Bashar Assad, whom the US and its allies want to see vacate the Syrian presidency. Iran also funds and supports the Lebanese Shi’ite militia, Hezbollah. In order to do so, Iran depends heavily on already limited oil exports to maintain its struggling economy, revenues of which have fallen by 30% according to President Hassan Rouhani.

And finally, the other entity that will be hurt by falling oil prices is the so-called Islamic State, which controls roughly 80 oil wells in Northern Iraq and Syria according to some estimates. The Islamic State was already under-selling the established markets, taking $20 per barrel, as they are hurting for cash in order to fund their military operations on several fronts. On top of this, the current allied airstrike campaign, that has mainly targeted the Islamic State-controlled oil production, is adding yet more pressure to the Islamic State’s economy.

Related: New Oil Tax Laws In Russia Could Backfire

Answers to questions pertaining to current affairs are often found in history books. Indeed if you want to predict the future, study the past.

Vagif Sharifov, an expert in the oil markets and a senior officer at Trend News Agency in Baku, Azerbaijan recalls the last time the oil markets were so low was when Washington wanted to pressure Moscow towards the end of the Cold War just before the Berlin Wall came tumbling down. Washington’s policy was to try and get the Soviets to spend money they didn’t have. To bankrupt Moscow.

“What followed was the collapse of communism and the disappearance of the Soviet Union,” said Sharifov.

“What is happening today is a repetition of what happened the last time around, the former Cold War warriors fought it out,” said Sharifov.”

By Claude Salhani of Oilprice.com

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Leave a comment
  • Muhammad Nisar on November 13 2014 said:
    Good article. But where will this drop stop ?
  • Alex on November 14 2014 said:
    Dear Claude,

    tell to the readers who is behind all the destabilisation in Iraq?! Would you mind if it is U.S.?! Just 6 months ago Washington supported ISIL to remove Bashar Asad! If U.S. does not invade into Iraq the World would not have the destabilisation of the ME! (well, if Iraq produces cucumbers not oil noone american soldier would put the foot on the Iraq ground!) Would you say if U.S. is being destabilising
    the situation all over the World: Afghanista,Iraq, Lybia. Do you know who is behind the civil war in Ukraine?! Would you mind if it is U.S. as well: who does sits in Kiev now advising new Ukraine government? - American advisers! Not Russian! Ukraine army uses heavy military against not TERRORISTS , but Ukrainian civil population. And we see a lot of refugees fleeding not to Kiev but to Russia. Are you going to name all these people "terrorists"? Why don't they go to Kiev? Look, Washington with London support this trend.
    And now tell us please why Russia is involved "in highly controversial conflicts and are facing opposition from the United States and the West"?. It is U.S. is involved in conflicts all over the World! (do you know haw many military bases U.S. have outside USA?! Russia has nothing outside the Russia!).
    It seems to me you are not the analyst but propagandist! You do not get at the root of look into the nature of things!
  • Alex on November 14 2014 said:
    For sure you would like Russia to be destroyed as well! The Western politicans are eager to get direct access to Russian Siberia!
  • Bill Frank on November 14 2014 said:
    Claude, why no response to Alex? Perhaps Alex has it right and this piece is nothing more than US propaganda especially with regard to who the real aggressor is in Ukraine.
  • mfan on November 15 2014 said:
    A fun read, but actually an intellectually weaker argument then the theory that God has heard the prayers of the Ukrainian people.
  • Andrey Palyura on November 15 2014 said:
    Claude, thanks for well written artice. But it seems that it is more political, than analitical and therefore it take only one point of view, not analysing the whole rather complicated proccess of oil trend.Moreover in long term, low oil price destroys Russian dependence on energy revenue and forces to develop other industries. That helps to save natural resources for future generation.
  • Claude Salhani on November 16 2014 said:
    thank you all for your comments and apologies for my tardy reply. I was traveling and and could not gt around to it.having said that, i think that some of you may have mmisunderstood what i was trying to say. this article is in no way supporting of the USGVT. In fact i attack the UAS Govt and remain critical of its actions. yes the US is concerned withe oil. that's why it went to Kuwait in 1990-91. Except this time the fight against ISIS is very real. we are talking about people who are selling women as slaves in the marketplace.
  • Natalia on December 19 2014 said:
    I have no idea what your roots are...are you French?... or what are your nationalistic origins? I will give you mine...I am American but I do have an international education...So...what are you alluding to? Russia has a true kinship to Ukraine...many Russian and Ukrainians have genealogical ties...so what!! The real issue here is that Russia is not bowing down to the US (really global oligarchs) and so this is a take down measure. If you really had a handle on this situation, you wouldn't be writing stupid sentences like..."Russia has been involved in Ukraine..." Where has the US not been involved in? Its a joke to even compare the two countries. Russia is defending itself against the aggressor US.

    My heart breaks because my country...the United States trampled over its Christian origins...this is not what George Washington, Benjamin Franklin, Thomas Jefferson, John Adams, et al every envisioned that this country would do...

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