U.S. response to the energy crisis was to establish deeper relations with Saudi Arabia. Deeper relations boiled down to two main points of agreement:-
- Saudi Arabia will have to sell its oil in US dollars only. It's implication is that any country wanting to buy Saudi oil will first have to buy US dollars to pay for oil purchased from Saudi Arabia. Thus began dominance of Petro-Dollars in world economy.
- In return Saudi Arabia got military protection from US.
Importance of Saudi oil started to change from 2009, when US oil production increased year on year. Increase in US oil production carried on unabated and Saudi influence declined proportionately.
To add insult to injury, more factors surfaced on the horizon for Saudis' discomfort :-
- New technology allowed further increase in US oil production through fracking (Shale gas).
- US no longer is energy dependent on Saudi Arabia.
- Saudi Arabia allowed oil price to plunge, hoping to make offshore drilling and Shale Gas production economically not viable. By doing so, Saudi's calculated that they will decimate competition and again rule the oil market.
- Instead something very strange happened. Unimaginably low oil price did not increase demand in oil.
- Demand destruction in oil was due to global financial crisis in initial stage. Then governments across the world started to curb use of oil and started investing in cleaner and greener alternative energy sources
- G-7 countries have agreed to cut carbon emissions and totally end fossil fuel use by end of this century.
- Paris Agreement on Climate Change last December commits all countries to holding global temperature rise to "well below 2 degrees Celsius". This can be achieved by sincerely shunning fossil fuel in an accelerated manner world over.Some more thoughts on fossil fuel in this post:
Saudi Arabia has now realized that it has lost control over oil price. Iran's entry into the fray as another major oil producer has not helped the Saudi cause. As last ditch effort Saudis played Doha Summit card for production freeze so as to contain Iran. But Saudi bluff was exposed by Iran and rest is history. Read more :
How Will This Sunday Be - Black or Grey?
Last Monday Saudi Crown Prince announced pompously that Saudi Arabia will become oil-independent for its survival in next four years. He unveiled "Saudi Vision 2030" - an ambitious plan to diversify into income streams not dependent on oil.
This is admission by Saudi Arabia that it has finally given up hope of controlling oil price. We can now expect to be freed from the vice like grip of oil cartel headed by Saudi Arabia.
Before Doha Summit, Saudi Prince had threatened to increase oil production in case Iran did not sign Production Freeze agreement. I had commented that it is empty threat to scare US, so that Iran can be pressured. You may again like to read my argument in: Dare Saudis to Execte Threat to Ramp Up Oil Production.
"Saudi Vision 2030" has finally brought curtains down on fight to control market share. This will help oil price to stabilize and get dictated by market forces of genuine demand and supply.
However we wish Saudis success in their new venture.
As for us, we are presently unemployed. We are sitting on the sidelines, watching fight between bulls and bears in US markets. For insight into our present idleness read " Out of Work But Thankfully Out of Danger - US Markets Dive "
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