The Financialist: What do you make of Saudi Arabia’s decision to sustain current levels of production despite a rapid deterioration in global oil prices?
Bruce Jones: Saudi Arabia needs relatively high prices for long-term fiscal and political stability. But they can weather a relatively low price for about 18 months because their unit cost of production is so low and they have large financial reserves.
Keeping oil prices low also achieves three things in the short term. First, it hurts Iran. Second, it damages Russia, which is payback for Russia’s support for Syrian President Bashar al-Assad. And third, it may slow down the rate of new U.S. production.
TF: Why take aim at Russia and Iran at this particular moment?
BJ: The Saudis confront two existential challenges. The first is non-state actors in Syria and Iraq. The second is the potential economic revival of Iran. The two countries have a long enmity, and Saudi Arabia recognizes that a vibrant Iran would threaten their regional dominance, as Iran has a much larger population and a better geographical position. The Saudis also worry the U.S. will weaken sanctions on Iran, and in the event that occurs, they’re putting pressure on the Iranian government through low oil prices.
- See more at: http://www.thefinancialist.com/the-geopolitics-of-oil-qa-with-bruce-jones/#sthash.PKQspYwn.dpuf
Bruce Jones: Saudi Arabia needs relatively high prices for long-term fiscal and political stability. But they can weather a relatively low price for about 18 months because their unit cost of production is so low and they have large financial reserves.
Keeping oil prices low also achieves three things in the short term. First, it hurts Iran. Second, it damages Russia, which is payback for Russia’s support for Syrian President Bashar al-Assad. And third, it may slow down the rate of new U.S. production.
TF: Why take aim at Russia and Iran at this particular moment?
BJ: The Saudis confront two existential challenges. The first is non-state actors in Syria and Iraq. The second is the potential economic revival of Iran. The two countries have a long enmity, and Saudi Arabia recognizes that a vibrant Iran would threaten their regional dominance, as Iran has a much larger population and a better geographical position. The Saudis also worry the U.S. will weaken sanctions on Iran, and in the event that occurs, they’re putting pressure on the Iranian government through low oil prices.
- See more at: http://www.thefinancialist.com/the-geopolitics-of-oil-qa-with-bruce-jones/#sthash.PKQspYwn.dpuf
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