Energy input is an interesting way of looking at oil. In 1930 we used 1 barrel of oil to obtain 100 more. With shale you are getting closer to spending 1 barrel of oil to get 3. https://youtu.be/WeBtdwPpTQM?t=450
[1] https://www.cnbc.com/2020/03/16/reuters-america-analysis-few...
But if demand falls that saudi oil can handle all the demand, and the Saudis know that wind/solar/EV is going to kill off oil so they better make money while they can (which is why they sold off Aramco), then they will sell what they can to keep it under what is profitable for the US alternative sources.
they barely sold off a 1.5% stake, and sold it to their own citizens, who are "forced" to buy it.
Without the need for holding dollars, rest of the world pulls the plug on the American financial system.
I do wonder what percentage, very roughly, of the money supply that is, and what the actual consequences of selling that would be. Anyone have some rough estimates or places to look?
The best argument for low oil prices crashing the US economy would be in any changes to US debt interest rates. While this would certainly change a lot about US politics and finances, one could not count on continuing to borrow indefinitely at sub-inflation levels, America could almost certainly pay it off if it found the will to do so. The fact that America has a large and diverse non-oil economy that would be strengthened by dropping energy prices is certainly a factor.
KSA meanwhile is a rentier state, with 67% of the budget coming from oil sales. Their non-oil economy is badly underdeveloped, and they depend almost entirely on oil money to keep their population fed, occupied, and suppressed. You’ll notice that I said “occupied”, since at a first glance the Saudi economy doesn’t actually include Saudis; 2/3rds of those employed in KSA aren’t Saudi (90% if you exclude oil), and only 30-40% of working age Saudi’s in KSA either have or want a job.
If the oil money were cut off from KSA, the lifetime of that regime would be measured in hours.
Are you sure about that ? both Putin and Xi would jump to make a deal for future oil exports in exchange for meeting Saudi social / security needs.
> America has a large and diverse non-oil economy
So does India, China <-- not superpower or depend heavily of foreign borrowing.
Pulling the plug on the dollar would materially make Americans poorer, independent analysts have put 50% of the value of the dollar arising from WRC status.
Americans can't handle that level of lifestyle change, without it being turned into a revolution.
Xi is different, but its a big question whether the Saudis would agree to their usually awful terms.
Xi maybe, but that would be a lot of money for future benefits; I doubt China can afford it.
Putin is aligned with Iran, Saudi’s enemy, and would also be in a lot of trouble in a hypothetical collapse in oil prices. He’d be in no place to help.
Also, the Russian economy is actually kind of small; Italy would actually be better positioned financially to bail out KSA than Russia.
> Americans can’t handle that level of lifestyle change without it being turned into a revolution.
Debatable. But between “My lifetime earnings have been halved” and “I can’t get food tomorrow”, I’ll tell you which one will trigger a revolution faster.
Another interesting tidbit: when Saudi allowed women to drive, oil was in another mini-"bust" cycle. A half-measure to stave off larger social change.
Look at all the big shale producers, their stock prices are top left to bottom right. Burning capital. This is not going to last and can only continue in the short term because of near-zero interest rates. Zero rates allow you to kick the can down the road .. for a while.
My model of these companies is that the product they are producing is not oil but the false promise of profits, sold to gullible stock buyers. Along the way some of the money is siphoned off as executive salaries and bonuses.
Reminiscent of many of the dot.com / dot.scam outfits back in the 1990s.
The developing nations are already suffering greatly. That’s why the recent conflict between india and China has occurred. Watch #boycottchina happening in other countries besides India.
Can you imagine being Iran, watching your economy being destroyed simultaneously by your biggest enemy, US, via sanctions. Then watch your countrymen get destroyed by your biggest ally, China, via Muslim concentration camps and coronavirus? And what if this leads to a rogue state where it attacks every ship coming out of Hormuz? And it leads to a sudden spike in oil price?
We live in interesting times
What are you saying here ? India-China conflict occurred due to the impact of low-priced oil ? This is a silly thing to say. India, China, Japan etc. benefit vastly from this price movement. India is infact now supplementing for lost tax revenue (by its stupid overreactive policies) by increasing petrol prices.
The only ones who lose are countries like Russia and those in the Middle East that rely hugely on oil/gas, and perhaps the US, partly due to the Shale oil bankruptcies, but I imagine, vastly more, due to the weakening of the petro-dollar, esp. in a time of unhinged money-printing.