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Global Energy Advisory – 10th July 2015

Geopolitics

This week we turn our attention to Saudi Arabia, where a number of things are coalescing to further change the oil price environment and the wider geopolitical picture.

First, we note that Saudi Arabia is becoming increasingly desperate to retain its crude oil market share, and this is leading to some interesting deals with India and Russia. For India, the Saudis are offering to ship crude using their own tankers to Indian refineries, which would cut the costs significantly for India. Essentially, this is how it gets around discounting its crude selling price. Some say that using Saudi ships to transport crude to India would shave up to 30 cents off a barrel. The point of this is to secure market share at a time when Asian buyers are looking for better deals in a global glut.

Then we have a pending Saudi deal with the Russians. This is important also because Russia has now officially surpassed Saudi Arabia to become China’s top crude supplier in this battle to capture market share. But it’s not oil that the Saudi’s are dealing with Russia—for obvious reasons. Saudi Arabia has signed a deal to invest up to $10 billion in oil rival Russia, in the fields of agriculture, medicine, logistics, retail and real estate. So while the Saudis are busy trying to secure oil market share, the Russians are busy trying to make up for hits they’ve taken from Western sanctions. This has produced a fair amount of dramatic talk about…

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