by The Ister for The Saker Blog
We can see the ongoing war against Russia’s energy industry as an act of revenge from the Empire – but a war which it is losing.
After Putin prevented the looting of the country’s energy reserves in the early 2000s, this economic war was launched, designed to cripple the nascent Russian Federation’s oil and gas industry and by extension the Russian economy as a whole.
This plan began with the planning of the Trans-Caspian, Nabucco, and Baku Tbisili Ceyhan (BTC) pipelines. The BTC pipeline was erected in 2005, pumping oil from Azerbaijan’s Caspian Sea fields through Georgia to Turkey. Next, the planned Nabucco pipeline would have brought Azeri gas from the BTC to the Baumgarten gas hub in Austria, where it would circumvent Europe’s need for Russian energy. As a final blow by NATO, the Trans-Caspian pipeline was intended to cross the Caspian Sea, bringing Turkmen gas and oil to Azerbaijan and eventually to Europe through the BTC and Nabucco routes, isolating Russia.
The Russo-Georgian war can also be understood through this lens. Two days before the outbreak of the conflict, the BTC pipeline suffered from a mysterious explosion. Putin’s victory in the war and subsequent occupation of South Ossetia and Abkhazia held the Nabucco and Trans-Caspian projects at risk, as Western energy corporations would no longer invest in such an expensive undertaking only miles from a conflict zone. The plans were scuttled. Russia’s oil giant Gazprom now signs deals to purchase Turkmen gas directly in order to disincentivize Turkmenistan from taking part in such a future project.
And while we see the reintegration of Crimea as the return of historically Russian territory, it was also a major victory in the energy war. In the Crimean conflict, Putin’s nightmare was that the overthrow of Yanukovych would be followed by the eventually weakening or removal of Russian military positions on the energy-rich Black Sea. A strengthened position in Crimea was leveraged in the creation of the TurkStream pipeline, which then allowed Russia to bypass Ukraine by shipping gas under the Black Sea to Europe.
Russia’s standing in the pipeline battle has been further cemented by recent events regarding the NordStream 2 pipeline, which will bring Russian gas through the Baltic Sea to Germany. Naturally, America is not a fan of this project and has sought to delay the construction by any means possible.
But even Germany, no friend of Putin or Russia, has pushed ahead with the project. Gazprom will now complete the pipeline alongside partners from British, Dutch, Austrian, and German energy companies. And while America may disapprove from afar, all America exports is its fiat dollar which can offer no substitute for the Russian gas and oil required to power Germany’s industrial clusters.
In December of 2020, Gazprom resumed construction on the pipeline despite America’s protestations. In fact, the German-Prussian state of Mecklenburg Vorpommern has recently voted to create a sanction-proof legal structure that would preempt future attempts by America to interrupt the project.
What a turn of fate: to see America’s omnipotence fade as the Empire’s geopolitical meddling is simply circumvented by peaceful trade
So while Russia’s victory in the pipeline battle has been unequivocal, the war has been fought in other domains. For the last 6 years the Empire has won the pricing battle, with its two primary weapons being the oil of Saudi Arabia and the natural gas produced by the shale revolution.
The oil price battle began when John Kerry and the Saudi King met in September of 2014. An arrangement was worked out where the Saudis would suppress crude prices to weaken the Russian economy in exchange for America’s military support in overthrowing Bashar al-Assad. Because Saudi Arabia has the lowest extraction costs of any major producer (3$ per barrel as of 2020), it can profit at prices much lower than its higher-cost oil-producing opponents such as Russia, Iran, and Syria. Under this new arrangement, crude prices fell to new lows as ISIS was spawned in Eastern Syria, and the Free Syrian Army was given American heavy weapons.
The Russian economy shrank almost 40% over the next two years. By comparison, America’s “Great Recession” almost crushed the entire financial system after a mere 2.5% drawdown in GDP. Russia was able to withstand the enormous contraction because under Putin the country’s monetary policy is focused on maintaining net-zero debt: a far cry from the 1990s when Saudi price-suppression (intended to punish Russia for fighting Islamists in Chechnya) hammered down crude prices and resulted in the 1998 Russian financial crisis. Now that Russia operates without external debt, these price tactics are harmful to the populace but no longer imperil the functioning of the state.
While 2020 has seen a renewal of price suppression by the Saudis, the Kingdom’s long-term prospects are plummeting. Below Saudi Arabia sits the state of Yemen. As the high birth rate outstrips the supply of natural resources, Yemen produces an excess of poor and radicalized young men. In response to Saudi and American airstrikes, the Houthi movement has united Shia and Sunni Muslims in Yemen under a common banner against their northern neighbor. Now Yemeni rebels are targeting Saudi oil facilities with increasingly frequent drone strikes, one of which spiked oil prices by almost 20% in Sep 2019.
Another problem for Saudi Arabia is resource depletion. The Saudis are systematically lying about the amount of oil that’s remaining. Leaked communications showed the former VP of Aramco warning the US that their oil reserves could actually be 40% lower than claimed. Consensus used to be that the Ghawar field had 5 million barrels per day capacity. The IPO filing for Aramco revealed a maximum capacity of 3.8 million barrels per day: and that’s their biggest field, producing a third of the nation’s oil output.
If their oil reserves are fine, why has the Kingdom been panickedly talking about economic diversification for the past 5 years? Why did Aramco even have to IPO? America’s vassal state in the crude oil battle seems to be drying up.
Another weapon in the energy price war has been the shale gas revolution. New advancements in horizontal drilling and hydraulic fracturing have allowed America to access previously hard to reach “tight” oil and gas reserves. As many small and mid-sized fracking operations rapidly set up shop in the mid 2010s this flooded the world with cheap natural gas and lowered Russia’s energy earnings. However, many of these firms were unprofitable and existed only due to the ultra-low interest rates available at the time, which enabled companies to operate at a loss for several years: meaning that the profitless shale revolution which hurt Russia was de facto financed by the Federal Reserve.
The fall of US shale seems to be on the horizon, as the industry showed signs of huge weakness in 2020. Oil and gas bankruptcies have quadrupled from 2019 to 2020, and production levels from America’s largest fields have dwindled. The Eagle Ford field is down 30% from 2019, Niobrara is down 35%, and Anadarko is down 40%! The best case for America is that these were voluntary production drawdowns due to cheap prices. The worst case is that these are symptoms of the end stage of depletion – the same fate befalling Saudi Arabia.
Even if the large American fields return to their previous production levels, this wave of bankruptcies will remove many small producers from the market who were essentially drilling at an operating loss for years.
There are other developments that suggest that the Empire is losing the energy war
1. Nikol Pashinian, who targeted Gazprom in Armenia with spurious lawsuits, has been given a black eye by Putin. By brokering the Armenian-Azeri peace deal the Russian military now permanently occupies the Caucasus. Anyone who seriously believes it is limited to 5 years should look to the “temporary peacekeeping operations” that have kept Russian troops stationed in the tiny nation of Transnistria for almost 3 decades. Russia’s position in the region – a crucial energy hub, is now stronger than at any other point since the Soviet Union.
2. In defiance of US sanctions, Iran has restarted its domestic shipbuilding industry by constructing new oil tankers with natively sourced parts. New Aframax size tankers have the capacity to hold 750,000 barrels of crude oil and will be used to surreptitiously deliver oil to Iran’s trading partners
3. Despite feeble efforts by Washington to install Juan Guaido in Venezuela – the only country with comparable energy reserves to Saudi Arabia, Maduro is still in power, and Russia and China are now collaborating to circumvent US sanctions. Throughout 2020, crude from Venezuela arrived at Chinese ports, having been snuck past American detection with the aid of Russian state oil company Rosneft, which made the oil appear as if its port of origin was Malaysia.
So what are the takeaways from these events?
First, we can see that Europe is waking up to the necessity of Russian energy. Despite all America’s bluster, it cannot provide a viable alternative even for the countries with which it aligns ideologically. Sure, there will be haphazard attempts like squirreling tight gas from cracks in the Mediterranean Sea, but those are at best partial solutions. Second, sanctions have backfired: the Russian economy is now fully resilient and profitable. There is no further way to wage economic warfare on a nation that has already been isolated from the global financial system. As far as oil trading is concerned, the willingness of America to impose restrictive sanctions has been matched by the creativity of those hoping to bypass them. Finally, the toughest period of the price war seems to be over and the pipeline battle has been won.
The Ister is a researcher of financial markets and geopolitics.
Mr Ister,
excellent analysis, thankyou.
Just so you know, re: Escape America
“We don’t know when or if this item will be back in stock.” – Amazon
Interesting, so the book isn’t generally shadow banned, but it depends on a customer or country? It said “In stock” when I opened the link, total cost: $22.98 including Shipping & Estimated Import Fees Deposit to Slovenia.
there was one book available for shipping to Norway in the link..
One available to Japan as well.
Finally a (well written) article that tackles the issue underlying the current events (imposition of a police state most everywhere in the West, along with policies aimed at population reduction). All we have seen in the last 12 months can be understood in the light of peak oil. And it is not just your grandfather peak oil, because the descent is accompanied by rapid decline of sweet, collapse of shale, and plenty of tar requiring a high cost of energy to produce energy. The population will have to decrease just as rapidly to avoid major chaos. It has nothing to do with ideology.
Further, all new discoveries are in Russia or in Russian lakes, like the Arctic or Black Sea, and Venezuela is much hardened now by Russian military equipment. On a side note, I do wonder if the USA really wants Venezuela’s tar, there is plenty coming from Alberta, and they need very light crude to mix it with for their refineries to work. It seems to me that they need light oil far more now. I am unable now to find out where light crude comes from, but I would put that right into the list of countries deemed non democratic by the Biden team.
The Yemeni of course are suffering and will suffer more under Biden. But that war seems something similar to shale, spending billions to try and get millions of oil. It will also come to pass. They have no clear path to maintaining this charade for more than a few years.
If you want to reduce energy consumption at a societal level the other option in addition to population reduction is lifestyle restrictions. I suspect that high-level decision makers have been shown the real stats on energy and are using coronavirus as a cover to prepare the populace for such changes.
As far as depletion: if reserves are truly ample why would we even be using tar sands and sour oil in the first place?
Yes, Ister, we see things eye to eye and this is why I complimented your article. Population has not decreased yet, for that we will have to wait for vaccines. But consumption surely has. In the USA, we are down to 1997 levels, when the population was significantly smaller, all due to restrictions.
I add two bits from personal experience/knowledge: one, the governments of relatively functioning countries like Japan and Switzerland are in on it. The elites are truly and globally united for population reduction, excluding the usual suspects (Russia, China, Iran). Two, the Saudi 2030 initiative (as well as the NEOM project, both very expensive, hundreds of billions dollars each) described by William Engdahl is a direct consequence of the status of the Ghawar field. On the other hand, the Hubbert peak theory specifies that production will decline 40 years after peak, and Saudi production did peak in the 1970s. So here we are, discussing at length what happened Jan. 6. It is a blip in the radar, compared to what is coming everywhere in the West.
“spending billions to try and get millions” works only as long as the World accepts and uses USD in trade.
The US has been allowed to create trillions in USD, backed only by the US military.
The immoral sanctions, imposed on nations that won’t submit to the Empire, are increasing the mass of nations that seek an alternative to the Petrodollar Empire.
The Empire is creating the need for an alternative, that will hasten the end of the Empire.
No way out.
Thank you for a highly-informative article. :)
“I suspect that high-level decision makers have been shown the real stats on energy and are using coronavirus as a cover to prepare the populace for such changes. ”
As a bit of a cynic, I suspect you have that back to front. They released an engineered virus (according to professor Montagnier) in 25 countries within 3 days. They were prepared to get the media everywhere to hyperventilate. It has been a huge success. Even doctors are scared where I am in eastern Europe.
According to a report on the WHO website, those under 70 have a 0.05% chance of dying if they catch Covid. What they don’t mention is that herd immunity is achieved when around 20% of the population has been infected. A simple stochastic simulation will prove it. Those who are most active get it first and they insulate others.
Removed. This is off-topic – please take the conversation to the MFC. Any further replies will go to trash. Mod.
No he has that thing oriented right. Peak oil generated the virus, and not the other way round. To answer also other points, with the end of empire, the price of oil will increase by a lot. If the money in your wallet is dollars, for you it will increase more. It will increase regardless though.
Light oil comes from the US. Tight oil is generally light oil.
US shale produces a lot of light oil and also Libya does/or did
“Another problem for Saudi Arabia is resource depletion. The Saudis are systematically lying about the amount of oil that’s remaining. Leaked communications showed the former VP of Aramco warning the US that their oil reserves could actually be 40% lower than claimed”.
Well, according to one analyst, Saudi Arabia has exaggerated it’s oil reserves by an incredible 80 %. No matter what the true figure is regarding Saudi oil reserves, the point is that you cannot exploit oil for so many decades and still expect to have huge reserves left. Proof of this lies in the Saudi invasion of oil rich Yemen, which has untouched oil. However, the invasion turned into a black comedy, the Royal Saudi troops seeing no reason why they should fight and die in another country. Their performance was terrible. Not even the infusion of foreign mercenaries redressed the situation in Saudi and Western favor.
As for Russia and it’s oil and gas reserves, they are reality. As the author has stated, ” … even Germany, no friend of Putin or Russia, has pushed ahead with the project.”, ie. with Nord Stream – 2. Not only Germany, but little Denmark as well, have said ‘no’ to the US in it’s attempt to block the gas pipeline project. This is proof that the US is losing power on the international scene.
BF, “This is proof that the US is losing power on the international scene” Could it also be that that these nations are waking up to the fact that the US treats them for what they are? i.e bitches, and they do not want (at least some of them) keep playing this role any longer. I think Russia shows lot more respect for Syria than the US has for EU countries. As an example the US has openly showing more and more interest to take over Greenland from “friend” “ally” country Denmark, this shows total lack of respect for its “friend” but thats the way US treats its “friends”
REsource depletion is not the issue. It really doesn’t matter if Saudi has its claied 92 years of reserves, or half of that or 20% of that. By 2040 or soon after the oil market is going to be closed and most known oil reserves in the world will stay buried just like most coal reserves.
Solar and soon after Fusion will replace them very soon. In the mean time anyone with oil has to be pumping at cost price.
That of course it the reason for the price collapses in 2020 and recent years. No need to invent Saudi/USA conspiracies – even in it was almost only the US shale producers with no capacity to export or store that suffered.
What you are suggesting will not happen. When I was a teenager I was very excited by an article I read on fusion, which was around the corner. That was in 1968. Solar power is too feeble and intermittent to ever power an advanced civilization. Oil, gas, and coal will last a lot longer, at least 50 years. If we ever want to replace fossil fuels, the technology has been available for decades, nuclear power. That is the only technology that can reach the scale needed. We know how to do fission, and there is room for substantial improvements. The energy will last virtually forever. Burning just the spent fuel and depleted uranium already stockpiled in the US, in a fast reactor, would supply all energy needs for 500 years.
Solar?😂 Really Michael?
you should try to learn how they make them.😉
Raw materials, production and most of all the amount off energy it takes to produce solar and wind energy and how “easy” they are to recycle🤷♂️
(F)elon subsidy truffle hound musk, governments and billionaire malthusian fascists is not going to save the earth nor is ev`s, solar or wind energy.
Those are globalist ponzi schemes and utter bs.
Nuclear power and hydro electric is the future if we manage to stop the malthusians and globalist scum, fusion is still many years away tho.
I have not read or cared about fusion tbh, so i might be wrong.
“you should try to learn how they make them.😉”
https://www.armstrongeconomics.com/world-news/climate/what-the-gore-gates-schwab-are-too-arrogant-to-admit/
Another proof that the US may be losing power came to my attention a few days ago when in prime time Japan’s national broadcaster NHK declared the Biden presidency to be the biggest risk of 2021, saying America was going through a crisis of democracy, and featuring one of Trump’s supporters, who’d been at the “insurrection” and gave the other side of the story there. My jaw nearly dropped to the floor.
I think it was a trial balloon floated to see who would respond how. Later on, my husband tells me, they removed that segment from the content. Japan is very timid about confronting bullies, and I don’t expect any major change from them, but this was interesting to see. They do chafe under Empire.
ZeroHedge reports today of Exxon “Mega oil finds” off the coasts of Guyana and Suriname. The article continues with a bit of detail of the agreement Exxon struck with the Guyana government in developing these offshore fields.
“There was an $18 million signing bonus with only 2% royalties payable on the oil produced and a 50% profit sharing clause, which only applies once 75% of exploration and development costs have been recovered.”
Maybe more importantly these wells are expected to produce 120k bpd with 220k by 2024. Considering that the US uses 15million bpd these finds are effectively barely a trickle, but I guess it’s something. The article starts off reassuring readers that Exxon is not a “zombie” company. This is what “peak oil” looks like: a steady, unrelenting decrease in production despite technological improvements and “new” finds.
Not to bean pick, but:
– heavy weapons are ships, planes and tanks…
– According to the economist Delyagin, up to 70% of regular gas prices in Russia are taxes. Normal Russian folk pays a hefty price and in many ways underwrites the oil export by being priced out in favor of said export market. International prices fall or rise – normal Russians loose. (Have you ever visited Russia’s “Rostat” statistical agency? It’s a nightmare, you cannot get simple aggregate statistics like transportation volume, aggregate energy consumption by economic branch. The agency was if I recall correctly put under direct control of the economic development ministry. Many shenanigans in the past, Khazin and Delyagin have much info about that if you are interested.)
– Generally, it is highly dubious to sell off once own resources without any added value. Instead of developing your economy you are supplying your competitors. Some things have changed in this regard (MOSTLY by pure and blunt pressure!), but if you take a look at the export portfolio of Russia, it’s still is mostly energy, minerals and agriculture. Nothing to be ashamed off, but nothing to be proud of either. If you are calling yourself a separate civilization like many commentators, politicians etc. do, you’ll have to step up and change that.
for example Russia shifted from exports to EU over to China ie. Russia is still export dependent economy , arm sales are important to ( iran,india etc.) this article is a ok rough sketch at best, missing lots of other important details
Nachtigall,
Russia’s oil & gas make up 60% of their export portfolio. This is well below that of Saudi Arabia which is 90%, and is actually the same as Norway’s.
I agree they can develop some goods & services for their domestic market and for exports, but overall it’s not such a bleak picture.
You are forgetting something: Extracting oil and gas is changed considerably since early years and is technologically very intensive.
For instance just to transport NLG from Russian Arctic requires technology that needs to sustain the harshest environment possible, from drilling platforms, gas processing plants, NLG terminals, special NLG ships with reinforced hull, huge ice-breakers even nuclear powered to keep lanes open, special helicopters that transport crews, special equipment for surveillance, airports for transport in and out, airplanes for air long-distance transport, railways for all kinds of the transport, trains and locomotives, meteorological ships and equipment, geology and marine experts, satellite navigation, communication and surveillance and security shield to protect everything.
At every step Russia is using mostly domestic technology and people. So there is a lot of added value in the oil-product Russia sell.
I used to leave in Norway and tax percentage of the petrol is even higher there (the price is if not highest then among top 3 in the world) and you can hardly claim that Norway is favoring foreigners. It is similar in Russia regarding taxes.
I just looked at the petrol price in Russia and it is 3 times lower then i Norway.
https://no.globalpetrolprices.com/Norway/gasoline_prices/
https://www.globalpetrolprices.com/Russia/gasoline_prices/
https://www.xe.com/currencycharts/?from=RUB&to=USD
The price is 9% higher then in USA but among the lowest in the world.
This hardly motivates the following statement: “Russian folk pays a hefty price and in many ways underwrites the oil export by being priced out in favor of said export market.”
Well, you make good points. The tax structure of the Russian state is a problem, this is what I would argue first. The Russian state is not using the Rubel as an investment vehicle. Instead of flat taxing the populace and inventing more and more tax schemes to finance the budget, it should create the money needed for projects (new cities, ports…). Second, what I mean with “hefty price” is that the last time the oil price took a major hit, Russian exporters sold preferably for export, which kept the price high.
The general scheme of Russian liberals and its liberal freako government is to make everything public private. Private health care, pensions, education, transport and infrastructure. All they can think of is how to sell off public assets and tax the population. No real economic development plan etc. You know probably the nearly yearly ritual of announcing national projects in the economic sphere which are almost always completely bungled by its liberal government. Mischustin is still new on the block and there is some encouraging changes that have been made recently. But all the plans for privatization are another very bad sign.
I don’t want to see Russia to build a SU 2.0, but it still can adapt a lot of parts from its past and develop new models in a rapidly changing world.
P.S.: For the life of me, those freak liberals love two words “Цифровая экономика” and “иностранные инвестиции”. It’s a fetish and shamanic thinking, which is the biggest hurdle to Russian state development.
I would argue that Russian especially defense industry and population in general are still very dependent on state contracts and not known to be overly effective. So there is nationwide program of forcing defense (I can’t remember the milestones, we are talking about 3-5 years perspective) industry to diversify and switch part of its production (it is different for different areas but in general I think the goal is at least 50%) portfolio to the civil products.
So privatization should also be seen in that light. I’m not claiming that oligarchs and “liberal” are not trying to rob the companies and national resources but we are not in 1990’s any more so it is much more difficult though not imposible to destroy the property and get reach overnight.
Pendulum for the healthcare has turned aground during the pandemic and Russia has built a number of new hospitals, countryside is getting back local medical facilities than were “rationalized” previously.
The other important area Russia is heavely investing in is education and youth sports as well as kindergartens.
The third one is transportation infrastructure: shipbuilding, port expansion, roads and railways, airplanes and airports.
The forth one is agriculture and food production where progress has been almost unprecedented.
Regarding high prices I’ll refer to Norway again: If you have very high taxes which are also in absolute levels than world oil price has very little influence on the consumer price. With simple calculation you can see that if all taxes are 70% of the price even cutting world oil price in half (I’m not even taking into consideration the fact that oil price is just a fraction of the price: transport companies take their considerable share independent of the world oil price, than you have refineries, storage cost etc.) in best case it would give 15% lower price.
Almost every state is using global climate fear to heavily tax all fossil energy sources to fill the budget.
And Russia is no exception.
Regarding the development plan(s) most of it is based on the Presidents directives (orders or what they are called) which are public. His team is formulating most of the goals, setting up the deadlines, handing them over to the government for implementation and following up the progress. Ministers are trying to manipulate statistics and present inflated results but the mentioned teams are producing their own statics which are used as metrics and not the governments data.
So I wouldn’t agree there are no national development plans.
What I believe is the largest challange is that all this is very much dependent on one person – Putin and there is no stable system in place (yet) that wold continue in the same direction the moment Putin leaves the politics.
I think that is going to be Putin’s most important legacy if he manages to deliver it.
“I used to leave in Norway and tax percentage of the petrol is even higher there (the price is if not highest then among top 3 in the world) and you can hardly claim that Norway is favoring foreigners.”
we do have Very expencive gas here, but i will claim that my gov is favoring foreigners.
the gov have privatized most of our national values and they are fully onboard with “the great reset”.
Yes, to a degree I agree with you, but it all depends on your pov and world view in general. Norway is, like Russians like to say, a rabbit state in terms of importance and population. As is Sweden, Finland and the Baltic states. Saudi Arabia has nothing but sand and oil. Not more than hundred years ago the country was a bunch of nomadic tribes. After WW2 the SU build 100+ new cities, mega-projects…ah I digress. I do not want to belittle modern Russia’s achievements, like the new polar port of Sabetta, new manufacturing +++. It’s still a far cry from the SU in terms of manufacturing. I know why, but all this potential, the people I know, damn, all I gotta say is, Russia, take a very hard look at China, Korea, Japan …
The official stats from https://rosstat.gov.ru/folder/11193 (export-structure excel data sheet, latest data for 2018 and original layout of economic branches):
1. Food products and agricultural raw materials (except textile) 5,5%.
2. Mineral products 64,9%.
3. Chemical industry products, rubber 6,1%.
4. Leather raw materials, furs and products made from them 0,1%.
5. Wood and pulp and paper products 3,1%
6. Textiles and footwear 0,3%.
7. Metals, precious stones and articles made of them 12%.
8. Machinery, equipment and vehicles 6,5%.
9. Other products 1,5%
Counting 1,2,5,7 together 85,5%. Energy, minerals, agriculture and wood.
Russia has during 20th century demographically suffered more than any nation on the planet: 2 WW’s, one civil war, Stalin’s purges and Soviet dissolution/Yeltsin’s era.
The last one was probably even most devastating, industry destruction, drastic population decline and average life time expectancy, military decay, science destruction, unprecedented brain drain and last but not the least economy collapse due to having most important and majority of the industry staying outside the border and cutting the links with former Soviet republics.
Give Ukraine 7-10 more years, if it continues on the same path, and it will probably accurately illustrate the state of the Russias stathood at a time Putin took over.
In a single decade Russia has achieved almost a miracle.
Yes, it could’ve been better (and Russians should press its politicians to deliver better results) but given the circumstances I am personally mightly impressed with the achievements.
What a great read on such an important subject!
I agree that Saudi Arabia has very low extraction costs but, they have one of the highest fiscal break-evens in the world (monarchy, bloated bureaucracy etc). They also have a pegged currency, which meant they had to use their reserves to defend the peg when the oil prices were at their lowest. The oil price war was never really winnable for them…
Russia has low debt and a free-floating currency!
Question regarding Azerbaijan: their oil is being promoted by the EU as some sort of “preferred” provider as it is neither Russian nor Iranian. I read somewhere that the Azeris don’t actually have enough oil to meet all of Europe’s energy needs. It has to be supplemented by Russian oil. Ie: It is actually Russian oil, ie not 100% Azeri oil, which is circulating in their pipelines..Ister, can you or anyone else confirm (or contradict) this?
Btw, I like the name “The Ister”. A reference to the Danube river? Or something else?
Speaking about Ister, people forget, if they ever knew, about the project of the pipe-line Constanta -Trieste which would have transported the Russian oil under the Black Sea and then along the Danube, Sava to Trieste and from there to the rest of Europe, the shortest and most economic line. Imagine in what position Serbia, Romania, Bulgaria would have been!
Yes, that was the best & shortest route…I believe the Croats nixed that one…
If aliens from outer space saw the convoluted paths of Turkstream and now Balkanstream they’d think we’re crazy…lol!
Thanks for a very interesting article, mr. Ister.
By far not meant as criticism, I just want to add a few thoughts for the reader here.
1. Talking about barrels of oil is just part of the sum. An important factor is the so-called EROI: https://en.wikipedia.org/wiki/Energy_return_on_investment .
This must be seen twofold, what is the ‘extraction effort’, and what is the ‘fabricating effort’. In other words, how easy do we get it above the ground, and how easy can we converse it to usable compounds. Venezuela has an immense oil reserve, but it is not easy to extract, is so bitumous that it has to be mixed with naphta to get it pumpable, and has such a high sulphur content that not any refinery can handle it. This also means high logistic costs.
Overall, the EROI of oil over the world has a rising trend.
2. That Saudi Arabia is slowly running out of oil is a known fact in the refinery world. The amount of Ghawar oil shall be about 50-60% by now. Saudi oil has a rising ‘water cut’, which means that more and more high pressures are needed to get the oil out.
Add to that, the Saudis are also running out of water, and desalination of seawater is very expensive. A war with Yemen is also very expensive, while not very winnable and hired forces have to be paid – Saudi soldiers don’t like to leave their airconditioned barracks too much. As a result, they will be running out of money – their Debt/GDP ratio is rising uncomfortably.
Low production cost is just a part of the sum: important is how the oil income is budgetted in the total nation budget, and in this the Russians beat the Saudis by far in sensitivity to that.
3. Saudi Arabia and OPEC sell their oil in dollars, so the whole world that buys oil needs dollars. With that the KSA buys US Treasuries, and this is (in short) the backbone of the so-called ‘petrodollar’, which means that the dollar is backed by US troops that will start bombing your country if you don’t stick to that. If that starts to crumble, then the dollar is toast while furthermore backed by, well, not so much.
(Don’t start to cheer yet, that might take quite some years, and when the USA hits the wall we might all do so be careful what to wish for).
Cheers, Rob
Then I more then wish for it.
I hope many will read this excellent article.
Nothing will put a bigger smile on my face than reading some day that natural gas is flowing through Nord Stream 2. The reasons for enmity between northern Europe and Russia are greatly exceeded by the reasons for cooperation and trade.
The fighting over who gets to sell oil and natural gas to whom has been ongoing for many decades. At least back to the war at Vietnam. There are no gains, only different degrees of losses. Increasingly one planet is dividing into two worlds. I agree the Empire currently is losing. But the end of the war is not in sight.
Thank you! This seems to be the crown event in recent days, overshadowed by the street drama in the US, but probably as important, if not even more important in the long run. Aligning with the topic of this article is the following:
https://www.zerohedge.com/geopolitical/russia-turns-attention-us-after-winning-oil-war-saudi-arabia
Cold weather for the Winter casting over all of Asia. Unexpected.
Russia will be selling every drop of fuel it can produce and ship, LNG, NatGas at higher prices than predicted.
Hi Larch,
You are not kidding … I am freezing. I put on socks and an extra blanket and never had to do that previously. Although they say it will not last long….
cheers,
Henry David Thoreau during his time out on Walden Pond noted rich people have heat; poor people wear sweaters.
i’ve often thought the middle east wars were intended to win the oil, syrian, iranian, iraqi, libyan, lebanese gas, for israel to ship to europe & o/c the world. fracking, imho, was never intended as the answer but as a stop gap measure to fill in supply until the empire had secured all the middle east. unfortunately russia regained her mojo, iran was stronger, smarter than the empire judged, hezbollah was stronger, smarter, so the plan didn’t go to plan. O well.
Thank you, Mister Ister 🙂 Excellent piece.
I found the below passage most significant, uplifting, and amusing at the same time:
” Throughout 2020, crude from Venezuela arrived at Chinese ports, having been snuck past American detection with the aid of Russian state oil company Rosneft, which made the oil appear as if its port of origin was Malaysia.”
Could we expect to see more ”incidents” involving Malaysian Airlines in case the US authorities swallowed the bait?
Humour aside, what I more than anything see confirmed by your blog post is that the West is ruled by and allied with what in plain language amounts to fascist imbeciles. Trump’s ineffective bluster and threats against Venezuela starring a bogus ’President’; the Ukronazis who botched the West’s take-over of Crimea; the Outhouse of Saud which is depleting its oil wealth and losing in Yemen, and the EU/US cesspits with their overt ditching of their own domestic mass base. Imagine what would have prevailed had Russia and China been smashed, burned, and looted as per the deliberations of Soros, PNAC, and the EU. I have never seen such pathetic ’performance’ by Western imperialism in my whole life.
Good article.
I have long believed that the drop in oil prices in 2014 was engineered by the U.S. to harm Russia, but I have not before seen it expressed so clearly as it has been in this paper. Nor had I seen the information about American use of oil prices in 1998 to punish Russia for Chechnya. Thank you.
I do have one point of disagreement. You say ‘2020 has seen a renewal of price suppression by the Saudis’. My analysis is that, rather than Saudi, it was Russia that initiated this price suppression, and that the target was the U.S. Russia did this at a particularly critical moment when the world was awash in financial instability, due to the beginning of the pandemic, and the supply of dollars was tight. The result of Russia’s action was that American financial markets collapsed, the Fed began massive money printing, that is now threatening the reserve status of the dollar, and the U.S. shale industry was knee-capped. According to Tom Luongo (https://tomluongo.me/2021/01/08/market-friday-saudi-arabia-loses-oil-war-russian-bear/) Russia has won the oil war and now controls the marginal barrel of oil.
As the saying goes, revenge is a dish that is best served cold.
Mr. Ister,
I work in the natural gas sector in Canada so I have an insider view of things and can attest that we certainly have a problem of sorts. Can’t say right off however that Peak Oil is actually true or whether we are about to. I know over the last 20 years when I first came across a documentary on Peak Oil it blew my mind and galvanized my thinking to read and learn as much as possible on the topic. i search everywhere for info and one of those searches led me to Gail Tverberg’s blog over at http://www.ourfiniteworld.com. It’s a real doomer blog and her argument which she approaches from the actuarial world is that whether peak oil is true or not the facts of the matter is that we have an affordability problem.
“Fossil fuel producers tend to extract the fuels that are easiest to extract first. Over time, even with technology changes, this tends to lead to higher extraction costs for the remaining fuels. Peak Oilers have been quick to notice this relationship.”
“The question that then arises is, “Can these higher extraction costs be passed on to the consumer as higher prices?” Peak Oil theorists, as well as many others, have tended to say, “Of course, the higher cost of oil extraction will lead to higher oil prices. Energy is essential to the economy.” In fact, we did see very high oil prices in the 1974-1981 period, in the 2004-2008 period, and in the 2011-2013 period.”
“Unfortunately, it is not true that higher extraction costs always can be passed on to consumers as higher prices. Many energy costs are very well “buried” in finished goods, such as food, cars, air conditioners, and trucks. After a point, energy prices “top out” at what is affordable for citizens, considering current wage levels and interest rate levels. This level of the affordable energy price will vary over time, with lower interest rates and higher debt amounts generally allowing higher energy prices. Greater wage disparity will tend to reduce the affordable price level, because fewer workers can afford these finished goods.” Tverberg
https://ourfiniteworld.com/2019/01/30/how-the-peak-oil-story-could-be-close-but-not-quite-right/
The cost of extraction is getting far to expensive and some of the things which I notice is:
Consolidation. Companies which at one time were bitter rivals fighting for market share throughout the world are now coming to the table and amalgamating.
Directors from my own company during a company wide meeting made it clear on two points if a barrel of oil sits at 50.00 we have a chance. if it rises above that were finished. They are happy just to break even. Incurring loses continually doesn’t cut it.
Employees are no longer hired on rather its all contract work which of course means no benefits, job security etc. Like the Japanese are doing.
In the news a few years back stoppage or curtailment occurred in the Alberta oilsands. A few weeks after this announcement in the news and what does one come across? In Nova Scotia a brand new offshore oil rig is launched to begin oil extraction off the coast? I thought that rather interesting and said to some friends what they can’t afford to do both?
I asked a director of my company who retired some years back but was involved in the Alberta oilsands asking him how many years left up there?
His reply? About 25 years if that is nothing occurrs with the Middle East and Saudi Arabia. It is why all of the American oil majors are up there.
Gail sums up much of her argument with the premise that if wages of non elite workers could rise high enough to pay the increasing costs of everything then likely we wouldn’t have a problem. That of course is not happening.
It’s a frightening scenario what is or could happen and for me it is these words that have extraordinary meaning because nothing in world history could fulfill it than the end of the Industrial Revolution:
“For then there will be great distress, unequaled from the beginning of the world until now—and never to be equaled again.” {Matthew 24:21}
The end of the age of oil would spell madness on unimaginable scale. If oil goes so does capital and banking essentially:
“Capital must protect itself in every way, through combination and through legislation. Debts must be collected, and loans and mortgages foreclosed as soon as possible. When through a process of law, the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law, applied by the central power of wealth, under control of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principal men now engaged in forming an imperialism of capital to govern the world. By dividing the people, we can get them to expand their energies in fighting over questions of no importance to us except as teachers of the common herd. Thus, by discreet action we can secure for ourselves what has been generally planned and successfully accomplished.”
Your remark “energy is essential to the economy” is so true. That is part of why operations such as American shale have to be maintained even if they are profitless. If oil and gas go all other sectors collapse and our civilization goes. Elsewhere in this thread renewable energies have been mentioned, and while they are useful they simply cannot match the enormous energy generation that civilization demands, and which only fossil fuels can provide. Which is why those Russian and Arctic reserves are so valuable.
Over time as the real energy situation becomes apparent I believe nations will be priced out of energy markets, starting with the poorest which have the least to exchange for oil, until eventually only the heavily industrialized nations can afford it. Countries such as Venezuela and Syria which have been economically devastated will be able to afford very little of their own energy for domestic consumption, and will have to export it if they wish to purchase any other foreign goods. Devastation which is, of course, by design.
Thank you so much for your insider insight. If you (or anyone else in this thread) want to stay in touch my email is theister@protonmail.com
An old but goody here:
https://medium.com/insurge-intelligence/brace-for-the-financial-crash-of-2018-b2f81f85686b#.vc97mme4m
and here about Tesla the longshot guy and unobtanium? lol Yes, your are so right about Renewables are never ever going to work out ever!!!! This video by Prager University? Wow just wow!
https://www.armstrongeconomics.com/world-news/climate/what-the-gore-gates-schwab-are-too-arrogant-to-admit/
By the way, The U.S. Commonwealth of Virginia just this past year enacted the “Virginia Clean Energy Act” which stilpulates that energy production in Virginia move toward “carbon free” sources. In compliment the major energy producer serving Virginia, Dominion Energy, which also serves seven other U.S. States agreed to the energy act and is now revising its energy porfolio to move toward “renewable energies” embracing wind, solar, “renewable natural gas”, and “carbon-free” nuclear plants to achieve a “net zero” carbon footprint by 2050.
Dominion with its partner company Duke Energy of North Carolina also recently cancelled thier Atlantic Coast pipeline project due to environmentalist pressures. This pipeline was to not only supply the Atlantic east coast, but also east coast liquid natural gas export terminals for shipment to overseas. I’m not sure about the status of the other east coast pipeline projects which are to serve export terminals, but I believe they are on their way to being cancelled as well. What this means is that there is no way for U.S. gas producers to export their gas to Europe. Thus whatever U.S. based competition there may have been in the European gas market is for all practical purposes dead, or is quickly dying. Gas for Europe will be coming from Asia, and most dominantly from Russia for sure. Not only economics, but also environmentalism is shaping the future energy market.
One needs to keep in mind why there is this new demand for gas by Europe. It is because of the Paris Climate Accords and the need to reduce CO2 emissions into the air. Burning natural gas emits about 1/2 of the CO2 as does the burning of coal. Look forward to a big China gas market as China will soon be converting their coal plants over to gas also.
One last note; In support of the Paris Climate Accords, for a hydro-carbon energy activity to be “carbon neutral” one needs a compliment of trees to soak up the CO2 emitted. Not only does Russia have a lot of gas, it also has a lot of trees. I predict a future market in “carbon credits” for claims on those forests.
Lol wait till they learn climate change has nothing whatsoever to do with industrial pollution but rather the pollution of sin. It’s going to be glorious!!!
Thank you Mr. Ister, The Saker, and all who provided comments. I greatly appreciate your works as they are vital to my quest:
1. Think critically. Using logic and reason, examine all aspects of an issue or event.
2. Ask legitimate questions.
3. Search for evidence and the “truth.”
“The eye sees only what the mind is prepared to comprehend.” (Henri Bergson).
Thus a fundamental question. If your mind is not prepared to comprehend the “truth”, how will you ever see it?