What's the possibility of Saudi Arabia and Iran going to war now that sanctions have been lifted on Iran by the US.
If they did go to war oil prices will skyrocket again. No ships will be able to pass through the Strait of Hormuz (The red circle). Would US Shale, Canada Sands, Brazil and Russian oil be enough to supply the world if after global trade picks up again?
All the countries besides the US are petrodollars so exports will be cheap enough for emerging markets to buy initially.
I can only say "wait and see". I, despite being heavily invested in oil, am rather liking the reduced costs of living everywhere.
Consider that Saudi will probably find an alternative route to get the oil to sea, given the money involved. That, or simply guard the fuck out of its oil exports.
Pic related: from a holiday I took to this area.
The oil fields in Saudi Arabia are where the Shia minority lives.
Iran should get the Saudi Shia to start sabotaging oil pipelines.
Which will raise oil prices and cut Saudi production. Win win for Iran.
The Saudis are going to open ARMACO to investors. This might be something.
Iran is looking more like the future American ally in the Middle East. Unless the American love the derka derka groups and using them to further American strategy in the region. Just like the British did in the past.
Arming and financing both sides is the US strategy. The US foreign policy is an echo of British colonial policy back in the days of the empire. Control through destabilization and funding groups opposing your goals to create panic and order. This is looking like the US grand strategy in the Middle East.
The talk of an Aramco IPO is the canary in the coal mine that things are FAR worse in KSA than anyone (especially them) wants to admit.
Think of this... a kingdom sitting on an ocean of oil. The oil is all theirs to do with as they will. The money is all theirs to do with as they will.
An Aramco IPO means KSA giving up control and giving up money.
My point... if things were going well, there would be no reason to sell off the industry. The fact that they are considering an IPO means things are so bad, they're willing to give it all up in exchange for cash now.
The decision has more to do with the dangerous financial situation in KSA.
According to an IMF report of October 2015, if they continue to spend as they are now, KSA will run out of cash in 5 years.
This IPO is a sign of weakness.
Ok... long reply...
1. KSA bases it's entire economy on bribing its citizens with oil money. The subsidize gas at around 10 cents per gallon, they don't charge citizens tax, and they hand out piles of money to citizens and various organizations every year.
2. In other words, they have a MASSIVE burn rate. When they can no longer make money on oil, they start burning through cash.
3. According to a September 2015 IMF report, the break-even for Saudi Oil (when you factor in government hand-outs), was $160/barrel in 2014. (this is up from $69/barrel in 2010, which shows you how much saudi expenses are accelerating)
4. Not being the brightest people, I gather no one has ever taught them about the demand curve, which would have told them they could make more money by cutting supply than by over producing.
5. Combine this financial mess with this... because they have forced the price down, that has also lowered the price that their neighbors can charge for THEIR oil.
6. Iran is already pissed of with them over religious issues, even more so now that the saudis are taking the food out of their mouths.
7. The other arab nations have hated KSA forever, but they haven't done anything because they operate under the protection of the US.
8. By IPO'ing Aramco, aside from the cash they get, it is an attempt to internationalize the kingdom... those who buy the share having a vested interest in keeping the status quo (aka: the current royal family).
Bottom line... KSA is screwed.
Exactly! Five years seems like far too long.
Like other wealthy Gulf states, the Arabs never do real work themselves. They give real jobs to Indians and Pakistanis. Their entire economy is based upon oil and oil products, and yet they have been the cause of the recent downfall in oil prices.
This clearly isn't there intended end-state, so what's next?
If Iran blocks the Strait of Hormuz, the US 5th Fleet will just plow right through it to open it back up. A no fly zone would be establish into UAE/Iranian territory and there would be a ton. of butthurt. US Air Force out of Qatar would bomb Iranian coastal positions. Don't count on the Gulf States sitting by either. Tons of economic revenue would be at stake. Kuwaiti F-18s, UAE F-16 Block 60's, Qatari Mirages and Saudi F-15's would also bombard Iranian costal positions. US and Gulf States would not be the only ones with interest with the access of the Strait. It would likely turn into a NATO issue. Iran would stand 0% chance of holding the Strait for more than a few hours, and the consequences of the systemic destruction of their conventional military would be devastating.
I have a friend who works in the british government's risk advisory service:
"we're stoking a sunni shia war, finally russia took the bait"
I have another as ex russian gvmt:
"divide and conquer is a benefit to us all now"
YES, it'll be in the latter part of the year, but mostly proxy; yeman, syria, bahrain, lebanon then saudi civil war will kick off.