According to Andrey Gudkov, an observer for Deutsche Welle, the oil games played by Saudi Arabia may present danger to Russia and the USA. The be more specific, the observer says that the Saudis are playing dangerous oil games. They have been playing similar games in security and politics. Now they are playing those in macroeconomics. For instance, it was Saudi Arabia who intentionally disrupted the recent oil summit in Doha. On top of that, the Saudis announced their intention to sell tons of U.S. bonds to a stunning amount of $750 billion. Such unexpected steps may undermine financial markets worldwide and eventually affect a number of major and emerging economies, including Russia and the USA.
Yet, it's not about whether the results of the oil summit in Qatar would have been bad or good for the global economy. It’s all about the fact that the participants managed to persuade the markets that they would be able to agree on freezing their production quotas to back a stronger oil market. All of a sudden, the Saudis canceled their agreements deliberately just a couple of hours before the summit. With that being said, the Saudis changed their mind and started thinking like Iran, who refused to participate in the summit and cut the oil production. By doing so, Saudi Arabia shocked all the financial markets, including commodities, stocks, and even Forex.
For instance, the failed oil summit triggered a 7% crash in the market of crude oil. Since Russia is heavily dependent on oil exports, it has been very sensitive about any changes in the oil market, which is why the Russian Ruble instantly followed crude oil on its way down to new local lows.
Apparently, no one likes such unpleasant surprises, especially if they come from such a major market player as Saudi Arabia. By doing so, the Saudis undermined their own image of an unofficial OPEC leader and a reliable partner. They also set Russia up since it was the biggest advocate of such an oil summit. Given the results of the recent summit, few experts actually believe in Russia creating a price cartel with other major oil exporters out there.
Why did Saudi Arabia do that?
When pondering upon, Mr. Gudkov assumes that the true reason or such a behavior are hard to reveal. Probably, the Saudi are up to something that has to do with another bearish cycle in the global market of crude oil. Maybe the Saudis made use of the summit to find out all the weak spots of their counterparts. If so, they seem to be ready to get back to their previous policies aimed at fighting for their market share and ousting rivals from the market by keeping oil prices low. That’s the only decent explanation of why the Saudis stick to higher oil production by all means despite knowing the consequences of oversupply. It seams they are willing to sacrifice today’s oil profits for the benefit of future ones.
Some experts say that this policy is aimed at some vulnerable African oil nations, as well as Venezuela and Russia with its costly oil fields in the Arctic and the Siberia. On top of that, it also undermines America’s shale oil industry. With that being said, the failed summit is a blow to the oil industries of many oil nations including Russia and the USA. If the Saudis start selling out their holdings of U.S. bonds, this is going to be another major problem for both Russia and America. They say that it has to do with with the fact that the U.S. Congress has approved the draft bill allowing the USA to sue the Saudis for being related to the 9/11 terrorist acts. With that being said, it looks like the Saudis are trying to defend their property on the U.S. property from being confiscated by showing the USA that they also had a trump card up their sleeves.
Should Saudi Arabia really sell such a huge amount of U.S. bonds, this is going to undermine the U.S. capital market. This may trigger a short-period if cheap U.S. bonds, which is going to make the borrowing costs much higher for the U.S. government. In its turn, such a scenario may create domino effect, hereby affecting the U.S. debt as well as the entire banking sector. Even though this is not going to trigger a collapse, the consequences may be truly serious, including a much weaker dollar as the result of a possible flight of capital from the entire world straight into U.S. markets.
