With different accents, almost all the commentators underlined the historic significance of the decision of the 166th OPEC summit held in Vienna last November 27 not to place limits on the oil production of the cartel and therefore to leave the price of the barrel of going down as far as the markets decide, it certainly cannot be said that it was an unexpected choice. The failure of the pre-meeting with Russia, the largest producer of oil outside of OPEC, together with the United States, made it possible to predict the final outcome.
At most there was talk of a possible cut of 500 barrels per day, however modestly effective in the current situation. Yet it is as if the formalization of OPEC's policy of non-intervention, successfully supported by the main member of the cartel, Saudi Arabia, has forced observers to remember that oil is not just any commodity. And that the decisions taken in this matter by those like OPEC who control 40% of world production of black gold cannot fail to have heavy geopolitical effects.
Warlike metaphors therefore abound in the headlines of the main newspapers: "The great war of energy" (Giorgio Ferrari in occur of November 27), "The war of crude oil that divides the world" (Alberto Negri sul Sun 24 hours November 28), "The weapon of oil" (Federico Fubini, on Republic of November 29), just to name a few from our house.
There is therefore agreement in foreseeing very serious and lasting consequences on world balances. But not always about who wins and who loses or who is allied with whom. If it is clear that Russia, Iran, Iraq, Venezuela, but also Ecuador and Nigeria are among the losers, we find less unanimity on the fate of the independent producers of shale oil in the United States and of oil shale in Canada.
Saudi Arabia, on the strength of its extraction costs of around 12 dollars, additional production capacity of around 3 million barrels per day and foreign exchange reserves of over 600 billion dollars can hold out for a long time with a price per barrel even lower than the 60 dollars, and with it its allies in the Gulf, while, it is argued, many producers of shale oil and the banks that have financed them would risk default.
This is not the case, as Leonardo Maugeri explained to us, before other newspapers, in the shale oil research reported on FirstOnline by Barbara Corrao: "The best knowledge of the secrets of the shale and the continuous technological advances will allow the most efficient companies to overcome the obstacle of the price/cost ratio and to prosper despite the collapse in oil prices".
If this were the case, and there is no reason to doubt the proven forecasting abilities of the former Eni top manager, the most correct interpretation of what happened in Vienna would be the one indicated by Federico Rampini on Business and Finance on Monday 1 December: “Washington-Riyadh against Putin, the oil axis is being strengthened”. That is, the move by OPEC was agreed with the US with the main objective of hitting countries not aligned with neo-Atlantic policies. The hypothesis of a Riyadh-Moscow axis to corner the US of shale oil by letting the price of the barrel fall would therefore only be a "cover" elaborated by the sophisticated disinformation American.
Net of any "conspiracy" and easy conspiracy, the collapse in oil prices in fact resembles the final weapon to bring the Tsar of Moscow to his knees. Combined with the post-Crimean and Donbas sanctions, the weak barrel could actually lead to the collapse of the Russian economy. With the ruble in freefall and currency receipts from energy commodity exports shrinking, it really looks like Vladimir Putin is cornered this time around. Anton Siluanov, the Russian finance minister, admitted that "at current prices we are losing 90-100 billion dollars a year".
Double the damage caused to the Russian economy by sanctions following the Ukraine crisis. In the 2014 budget Russia hired a barrel at 117 dollars and in 2015 at 100 and 50% of the state budget comes from foreign sales of hydrocarbons. The ruble, almost halved since the beginning of the year, weighs on the 600 billion dollars of external debt of large Russian companies. Rosneft, which alone accounts for 5% of world oil production, has foreign debts of 60 billion dollars. More optimistic Igor Sechin, number one of Rosneft and close collaborator of Vladimir Putin: "We expect - he told the Austrian newspaper Die Presse – a drop in crude oil to $60 or even lower for the first part of 2015. But we have the resources to withstand the shock even if, of course, we will postpone the more expensive investments”. An optimism perhaps forced by the role. Though the Russian Bear's pride and stamina should never be underestimated. Can the Russian crisis therefore be considered imminent? It is probable. But what nobody wonders is what would happen to world finance if Russia went insolvent. How many Western banks would follow? How many corporations that have billionaire investments in Russia (for all the 18,5% of Rosneft in the hands of BP or the 9.000 MW of Enel plants) would suffer?
Not to mention that squeezed into a corner by that part of the world under US hegemony which now considers it an adversary to be humiliated, as in the days of the Soviet Union, Moscow could only further strengthen its relations with China not only on the energy front ( agreements on gas last May and on exploration in the Arctic) but also on the financial one.
In 2012 the China Investment Fund, one of the richest sovereign wealth funds in the world with an endowment of about 600 billion dollars in agreement with the Russian Direct Investment Fund (10 billion dollars withdrawn from the 174,6 billion of the National Reserve and Wealth Funds ), created the Russia-China Investment Fund. For now, it has only $2 billion for common investments, 70% of which is in Russia. As many are expected from other domestic and foreign institutional investors. For now, he has invested in forests and gold mines. But the most symbolic project he is engaged in is the construction of the first bridge between the two countries. It will cross the Amur River joining the Autonomous Region of the Jews (Birobidzan) with the Chinese province of Heilongjiang.
While awaiting the possible Russian (and Iranian, Venezuelan, Nigerian, etc.) collapse, European consumers and businesses should only rejoice in the unexpected gift that arrived from the Brent collapse. “It is the first good news for the European economy since 2008, writes Bill Emmott, former director of theEconomist, its the print of last December 1, "The drop in oil prices by almost 40% in the last six months will probably boost Europe's growth more than Jean-Claude Junker's bogus public investment plan or the hope that Germany can change its mind about 'austerity'. And he therefore invites us to celebrate for the moment, waiting to see if the coming winter will be so harsh as to increase demand and therefore the price of oil. An unexpected aid to the recovery of the GDP, if a permanent drop of at least 10 dollars a barrel is estimated to raise the GDP of the Eurozone in the order of 0,3-0,5%. Although, according to Alessandro Merli on Sun 24 hours of November 29, "The collapse of oil complicates the work of the ECB". Making it very difficult to reach the goal of inflation in the eurozone at 2%, a level considered optimal for recovery.
So every medal has its reverse. All the more so in a highly globalized world like ours. The risk therefore, as Antonio Negri pointed out in the cited article, is that “The markets make the barrels (of oil) but not always the lids. The Vienna decisions will not lead us to a rosy drop in our petrol, but towards darker and more complex horizons – he warns us-. The maneuver of putting Russia and Iran on the ropes to make Putin and the ayatollah more malleable may not work". And he recalls how “With crude oil at 10 dollars, the government of the moderate Mohammed Khatami was cornered, but then Ahmadinejad, an exponent of the hard line of the Pasdaran, prevailed. Today – he concludes – if Rohani fails in Teherean we will see other faces in command and we will remember this OPEC summit”. Not to think about who might appear in the Kremlin.
