Opec bid to kill off US shale sends oil price down to 2009 low

Larry Elliott in The Guardian

Oil falls by $2 a barrel with energy shares as Opec refusal to stop flooding the market with cheap oil and likely US rate hike sends Brent crude tumbling

 

Oil rigs in western North Dakota, US. Opec plans not to cut output aims to kill off the threat from US shale oil by making it deeply unprofitable. Photograph: Matthew Brown/AP


Oil prices have slumped by 5% after the latest attempt by Saudi Arabia to kill off the threat from the US shale industry sent crude to its lowest level since the depths of the global recession almost seven years ago.

Signs of disarray in the Opec oil cartel prompted fears of a global glut of oil, wiping $2 off the price of a barrel of crude on Monday and leading to speculation that energy costs could continue tumbling over the coming weeks.

Shares in energy companies lost ground as the impact of the drop in oil prices rippled through European stock markets. Prices of other commodities also weakened following disappointment among traders that Opec had decided late last week to keep flooding the global market with cheap oil.

Iron ore continued its steady fall and finished the latest session at $38.90 per tonne, squeezing profit margins to the bone at even large producers such as Rio Tinto and BHP Billiton, whose shares fell sharply on the Australian stock market on Tuesday.

The consultancy Capital Economics tweeted: “#Oil sell-off after #OPEC makes even ECB look good. Better to have announced something, even if less than hoped for, than nothing at all...”

A barrel of benchmark Brent crude was changing hands for less than $41 a barrel in New York on Monday night after Opec – heavily influenced by Saudi Arabia – did nothing about a market already seen as saturated.

US light crude, which tends to trade at slightly lower levels than Brent, recorded similar falls, dropping from just over $40 a barrel to less than $38 a barrel.

Both Brent and US light crude were at levels not seen since early 2009, when the collapse of US investment bank Lehman Brothers triggered the most severe recession since the 1930s.

As recently as August 2014, Brent stood at $115 a barrel, but in 16 months its price has been more than halved in response to a slowdown in China and other emerging market economies, and the end of oil sanctions against Iran.

Global supply of oil is currently thought to be up to 2m barrels per day higher than demand, with traders fearing that Opec’s refusal to cut production despite the financial pain it is causing its members’ economies will lead to a still greater glut of crude. Venezuela, in particular, is thought to be suffering badly as a result of the drop in oil 

prices.

  Brent crude, from 2005-2015. Photograph: Thomson Reuters

The fall, if sustained, will lead to lower inflation in oil-consuming nations through the knock-on effects on petrol, diesel, domestic energy prices and the cost of running businesses.

Lower crude prices may also delay or limit increases in interest rates. The Bank of England has already accepted that inflation – which stands at -0.1% – has stayed lower for longer this year than it anticipated.

Analysts believe the slide in oil prices has come too late to persuade the US Federal Reserve, America’s central bank, to delay an increase in the cost of borrowing later this month, adding that the prospect of the first tightening of policy from the Fed since 2006 was an added factor in crude’s decline.

The prospect of higher US interest rates has led to the value of the US dollar rising on foreign exchanges; since oil is priced in dollars that has led to a fall in the cost of crude.

Markets had been expecting Opec to announce a new ceiling on production after last Friday’s meeting, but analysts at Barclays said the lack of any curbs in its announcement was a sign of discord.

“Past communiques have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not,” they said.

Saudi Arabia needs oil prices of $100 a barrel to balance its budget, but as the world’s biggest exporter of crude it is gambling that the low price will knock out the threat posed by so-called unconventional supplies, such as shale.

The chief executive of Saudi Aramco, Amin Nasser, said at a conference in Doha on Monday that he hoped to see oil prices adjust at the beginning of next year as unconventional oil supplies start to decline.

In a sign that US production could dip, Baker Hughes’ November data showed US rig count numbers down month-by-month by 31 to 760 rigs.

The fall in oil prices helped wipe almost 1% off share prices in New York. Wall Street’s Dow Jones industrial average was down more than 160 points in early trading, with Chevron and Exxon both losing around 3% of their value.

In London, Shell’s share price was down 4.5% while BP lost 3.4% of its value as early gains in the FTSE 100 were wiped out. The Index closed 15 points lower at 6223.

Road to Islamic State was paved by America’s Faustian bargain with Saudi Wahhabism

Sameer Arshad in Times of India

In the aftermath of the Paris carnage, US president Barack Obama led the usual counterproductive finger-pointing telling Muslims to ask themselves how extremist ideologies took root. Obama’s point is perhaps valid, but that is only a part of the problem. The West needs to answer far more serious questions. Besides waging destabilising, unjust wars and propping up despotic regimes in the Muslim world, it bears responsibility for planting cancer, which Daesh or the so-called Islamic State (IS) is a symptom of, in the process.

It is unfair to collectively blame Muslims for IS since they are and have been the worst victims of the mindless violence of the creed it represents for three centuries. Daesh has its roots in 18th century preacher Abd-al-Wahhab’s doctrine, which rejected Islamic pluralism enshrined in the Quran and declared war on Muslims other than Salafis.

The Ottoman Empire, which represented contemporary mainstream Muslims, resisted this challenge tooth and nail. It in fact coined the term Wahhabism to describe Wahhab’s creed and to underline it fell outside Islam’s pale. Thanks to the West’s myopic foreign policy goals and lust for oil, the creed has come a long way since the 18th century when even Wahhab’s brother and father rejected his doctrine. The creed has been defined mainly by hostility towards Islamic mysticism and seeking death for ‘deviant’ Muslims.

Beyond his family, Wahhab’s teaching found few takers. The vandalism inspired by him infuriated neighbouring tribes, who forced Wahhab to take refuge in Dariyya after threatening to kill him. Wahhab’s flight proved the turning point in his career as Dariyya chieftain Muhammad ibn Saud got into an irrevocable alliance with the preacher in 1747, under which he pledged his family would promote Wahhabism. It laid the foundation for Saudi Arabia on the ruins of the Ottoman Empire in 1932.

By the time Wahhab died in 1792 his followers had become lethal. They declared a war on mainstream Islamic sects by branding them polytheists. Taking ‘deviant’ Muslim lives was justified along with seizure of their properties and enslaving their women and children. This prompted the Mecca qadi to denounce Wahhabis as non-Muslims and bar them from entering Islam’s holiest city. The Ottomans condemned Wahhabis as Kharjites (defectors) and banned them from performing Hajj.

But the Saudis have honoured their pact with Wahhab by using petrodollars to export his creed through a cultural offensive which has undermined Islamic pluralism, triggered fratricidal sectarian conflict and birthed terrorist groups like al-Qaida and IS. The US has been complicit as the principal backer of Saudi Arabia.

This has helped America satiate its thirst for oil and use Wahhabi doctrine for short term goals like defeating USSR in Afghanistan. In the 1970s, the US used the Saudi alliance to counter Egyptian pan-Arab socialist Gamal Abdel Nasser and post-revolution Iran. In the process it often patronised the nihilistic forces that have now turned their guns on the West.

France’s unresolved Algerian war sheds light on the Paris attack

Robert Fisk in The Independent

People weep as they gather to observe a minute-silence at the Place de la Republique in memory of the victims of the Paris terror attacksGetty


It wasn’t just one of the attackers who vanished after the Paris massacre. Three nations whose history, action – and inaction – help to explain the slaughter by Isis have largely escaped attention in the near-hysterical response to the crimes against humanity in Paris: Algeria, Saudi Arabia and Syria.
The French-Algerian identity of one of the attackers demonstrates how France’s savage 1956-62 war in Algeria continues to infect today’s atrocities. The absolute refusal to contemplate Saudi Arabia’s role as a purveyor of the most extreme Wahabi-Sunni form of Islam, in which Isis believes, shows how our leaders still decline to recognise the links between the kingdom and the organisation which struck Paris. And our total unwillingness to accept that the only regular military force in constant combat with Isis is the Syrian army – which fights for the regime that France also wants to destroy – means we cannot liaise with the ruthless soldiers who are in action against Isis even more ferociously than the Kurds.

Brother of Paris attack suspect has no idea where his brother is

Whenever the West is attacked and our innocents are killed, we usually wipe the memory bank. Thus, when reporters told us that the 129 dead in Paris represented the worst atrocity in France since the Second World War, they failed to mention the 1961 Paris massacre of up to 200 Algerians participating in an illegal march against France’s savage colonial war in Algeria. Most were murdered by the French police, many were tortured in the Palais des Sports and their bodies thrown into the Seine. The French only admit 40 dead. The police officer in charge was Maurice Papon, who worked for Petain’s collaborationist Vichy police in the Second World War, deporting more than a thousand Jews to their deaths.

Omar Ismail Mostafai, one of the suicide killers in Paris, was of Algerian origin – and so, too, may be other named suspects. Said and Cherif Kouachi, the brothers who murdered the Charlie Hebdo journalists, were also of Algerian parentage. They came from the five million-plus Algerian community in France, for many of whom the Algerian war never ended, and who live today in the slums of Saint-Denis and other Algerian banlieues of Paris. Yet the origin of the 13 November killers – and the history of the nation from which their parents came – has been largely deleted from the narrative of Friday’s horrific events. A Syrian passport with a Greek stamp is more exciting, for obvious reasons.

A colonial war 50 years ago is no justification for mass murder, but it provides a context without which any explanation of why France is now a target makes little sense. So, too, the Saudi Sunni-Wahabi faith, which is a foundation of the “Islamic Caliphate” and its cult-like killers. Mohammed ibn Abdel al-Wahab was the purist cleric and philosopher whose ruthless desire to expunge the Shia and other infidels from the Middle East led to 18th-century massacres in which the original al-Saud dynasty was deeply involved.

The present-day Saudi kingdom, which regularly beheads supposed criminals after unfair trials, is building a Riyadh museum dedicated to al-Wahab’s teachings, and the old prelate’s rage against idolaters and immorality has found expression in Isis’s accusation against Paris as a centre of “prostitution”. Much Isis funding has come from Saudis – although, once again, this fact has been wiped from the terrible story of the Friday massacre.

Francois Hollande announces plans to change extend anti-terror powers

And then comes Syria, whose regime’s destruction has long been a French government demand. Yet Assad’s army, outmanned and still outgunned – though recapturing some territory with the help of Russian air strikes – is the only trained military force fighting Isis. For years, both the Americans, the British and the French have said that the Syrians do not fight Isis. But this is palpably false; Syrian troops were driven out of Palmyra in May after trying to prevent Isis suicide convoys smashing their way into the city – convoys that could have been struck by US or French aircraft. Around 60,000 Syrian troops have now been killed in Syria, many by Isis and the Nusrah Islamists – but our desire to destroy the Assad regime takes precedence over our need to crush Isis.

The French now boast that they have struck Isis’s Syrian “capital” of Raqqa 20 times – a revenge attack, if ever there was one. For if this was a serious military assault to liquidate the Isis machine in Syria, why didn’t the French do it two weeks ago? Or two months ago? Once more, alas, the West – and especially France – responds to Isis with emotion rather than reason, without any historical context, without recognising the grim role that our “moderate”, head-chopping Saudi “brothers” play in this horror story. And we think we are going to destroy Isis...

Saudi Arabia risks destroying Opec and feeding the Isil monster

'Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff,' says RBC

Ambrose Evans-Pritchard in the Telegraph

The rumblings of revolt against Saudi Arabia and the Opec Gulf states are growing louder as half a trillion dollars goes up in smoke, and each month that goes by fails to bring about the long-awaited killer blow against the US shale industry.

"Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff"

Helima Croft, RBC Capital Markets

Algeria's former energy minister, Nordine Aït-Laoussine, says the time has come to consider suspending his country's Opec membership if the cartel is unwilling to defend oil prices and merely serves as the tool of a Saudi regime pursuing its own self-interest. "Why remain in an organisation that no longer serves any purpose?" he asked.

Saudi Arabia can, of course, do whatever it wants at the Opec summit in Vienna on December 4. As the cartel hegemon, it can continue to flood the global market with crude oil and hold prices below $50.

It can ignore desperate pleas from Venezuela, Ecuador and Algeria, among others, for concerted cuts in output in order to soak the world glut of 2m barrels a day, and lift prices to around $75. But to do so is to violate the Opec charter safeguarding the welfare of all member states.

"Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff. There could be a total blow-out in Vienna," said Helima Croft, a former oil analyst at the US Central Intelligence Agency and now at RBC Capital Markets.

The Saudis need Opec. It is the instrument through which they leverage their global power and influence, much as Germany attains world rank through the amplification effect of the EU.

The 29-year-old deputy crown prince now running Saudi Arabia, Mohammad bin Salman, has to tread with care. He may have inherited the steel will and vaulting ambitions of his grandfather, the terrifying Ibn Saud, but he has ruffled many feathers and cannot lightly detonate a crisis within Opec just months after entangling his country in a calamitous war in Yemen. "It would fuel discontent in the Kingdom and play to the sense that they don't know what they are doing," she said.

"We are feeling the pain and we’re taking it like a God-driven crisis"

Mohammed Bin Hamad Al Rumhy, Oman's oil minister

The International Energy Agency (IEA) estimates that the oil price crash has cut Opec revenues from $1 trillion a year to $550bn, setting off a fiscal crisis that has already been going on long enough to mutate into a bigger geostrategic crisis.

Mohammed Bin Hamad Al Rumhy, Oman's (non-Opec) oil minister, said the Saudi bloc has blundered into a trap of their own making - a view shared by many within Saudi Arabia itself.

“If you have 1m barrels a day extra in the market, you just destroy the market. We are feeling the pain and we’re taking it like a God-driven crisis. Sorry, I don’t buy this, I think we’ve created it ourselves,” he said.

The Saudis tell us with a straight face that they are letting the market set prices, a claim that brings a wry smile to energy veterans. One might legitimately suspect that they will revert to cartel practices when they have smashed their rivals, if they succeed in doing so.

One might also suspect that part of their game is to check the advance of solar and wind power in a last-ditch effort to stop the renewable juggernaut and win another reprieve for the status quo. If so, they are too late. That error was made five or six years ago when they allowed oil prices to stay above $100 for too long. But Opec can throw sand in the wheels.

At root is a failure to grasp how quickly the ground has already shifted from under the feet of the petro-rentier regimes. Opec forecasts that oil demand will keep rising relentlessly, adding 21m barrels of oil per day (b/d) to 111m by 2040 as if nothing had changed. They have their heads in the sand.

The climate pledges made for the COP21 summit in Paris by the US, China and India - to name a few - imply a radical shift in the global energy landscape. Subsequent deals by 2025 may well bring a "two degree world" within sight.

The IEA says oil demand will be just 103m b/d in 2040 even under modest carbon curbs. It would collapse to 83.4m b/d if global leaders grasp the nettle. My own view is that it will happen by natural market forces.

The next leap foward in technology is going to be in energy storage. Teams of scientists at Harvard, MIT and the world's elite universities are in a race to slash the cost of batteries - big and small - and overcome the curse of intermittency for wind and solar.

A team in Cambridge says it has cracked the technology for lithium-air batteries that cut costs by four-fifths and enable car journeys of hundreds of miles on a single charge. By the time we reach 2040, it is a fair bet the only petrol cars still on the road will be relics, if they can find fuel at all.

"Everything will be electrified. The internal combustion engine is a dead-end. We all know that, and the car companies ought to know that," said one official handling the COP21 talks.

Opec might be better advised to target prices of $75 to $80 and maximize revenues while it still can, taking advantage of a last window to break reliance on energy and diversify their economies.

The current war of attrition against shale is a hard slog. US output has dropped by 500,000 b/d since April, but the fall in October slowed to 40,000 b/d. Total production of 9.1m b/d is roughly where it was a year ago when the price war began.

"The expectation that a swift tailing-off in tight oil would lead to a rapid rebalancing in the market has proved to be misplaced," said the IEA. Costs are plummeting as rig fees drop and drilling time is slashed.

There is a time-lag effect. Shale cannot keep switching to high-yielding wells forever. Their hedging contracts are running out. The US energy departmentexpects a further erosion of 600,000 b/d next year, but this is not a collapse.

By then Opec will have foregone another half trillion dollars. "What is winning supposed to look like for the Saudis? Can they really endure another year of this?" said Ms Croft.

Opec can certainly bankrupt high-debt frackers but this does not shut down US shale in any meaningful way. The infrastructure and technology will remain. Stronger players will move in. Output will bounce back as soon as oil nears $60.

Shale frackers will respond with lightning speed to any rebound and create a permanent headwind for Opec over years to come, or a sort of "whack-a-mole" effect, contrary to warnings by the IEA this week that Mid-East producers may regain their 1970s stranglehold once rivals are cleared out.

What is clear is that the Opec squeeze has killed off $200bn of upstream oil investment, mostly in offshore projects, Canadian oil sands and Arctic ventures. That will cut oil output in the distant future, but it is a different story.

Saudi Arabia has certainly regained market share, but the cost is causing many in Riyadh to ask whether the brash new team in power has thought through the trade-off. While the Kingdom has deep pockets, they are not limitless. Kuwait, Qatar and Abu Dhabi all have foreign reserves that are three higher per capita.

It has been downgraded to A+ by Standard & Poor's and has a budget deficit of $100bn a year, forcing it to burn through reserves at a commensurate pace and now to tap the global bond market.

Austerity has finally arrived, a nasty shock that was not in the original plan. A confidential order from King Salman - marked "highly urgent" - has frozen new hiring by the state, stopped property contracts and purchases of cars, and halted a long list of projects. The Kingdom will have to slim down the edifice of subsidies and social patronage that keeps the lid on protest.

It is far from clear whether Saudi Arabia can continue to prop up allies in the region and bankroll Egypt, already struggling to defeat Isil forces in the Sinai. An Isil cell captured - and beheaded - a Croatian engineer on the outskirts of Cairo in August, even before the suspected bombing of a Russian airline this month.

The Isil brand has established a front in Libya and has launched attacks in Algeria, where the old regime is fraying, and oil and gas revenues fund the vitally-needed social welfare net.

Iraq is pumping oil a record pace but it is nevertheless spiraling into economic crisis, with a budget deficit of 23pc of GDP. Public sector wages are to be cut. The austerity budget for 2016 - based on $45 oil, down from $80 last year - has set off a political storm.

The government has slashed funding for the "Popular Mobilization" militia fighting Isil. "The Iraqi state faces a grave challenge. The budget crisis makes the status quo intractable," says Patrick Martin from the Institute for the Study of War.

Helima Croft says Isil is now operating close to Iraq's oil facilities near Basra, detonating a car bomb at a market in Zubayr last month. They clearly have the ability to attack energy targets, and have an incentive to do so since oil production within their Caliphate heartland is their main source of income.

Al Qaeda in the Islamic Maghreb showed it could launch a devastating surprise when it crossed into the Sahara two years ago and seized the Amenas gas facility in Algeria, killing 39 foreign hostages. Variants of Isil can strike anywhere they find a weak link.

"We remain concerned that they may eventually set their sights on a major oil facility. These are obvious targets of choice, and none of this geopolitical risk is priced into the market," she said.

Saudi Arabia itself is vulnerable. There have been five Isil-linked terrorist acts on Saudi soil since May. They include an attack on a security facility near the giant oil installation at Abqaiq, where clusters of pipelines offer the most inviting sabotage target in the petroleum world and where the aggrieved Shia minority sit on the Kingdom's oil reserves.

It would be a macabre irony if Saudi Arabia's high-risk oil strategy so enflamed a region already in the grip of four civil wars that the Kingdom was hoisted by its own petard. That would certainly clear the global glut of crude oil.

US shale oil stares into abyss with Opec ready push it over

Andrew Critchlow in The Telegraph


After hanging on for almost a year, the US shale oil industry is on the brink of complete capitulation. The reason for its impending downfall is simple: the lowest cost producer always wins. In this instance the most profitable producers are Saudi Arabia and its close Gulf Arab allies, who effectively control the Organisation of the Petroleum Exporting Countries (Opec).


To their credit, shale drillers and operators in Texas and North Dakota have hung on for far longer than anyone expected after Opec launched its pre-emptive oil price war last November. However, a year of oil prices trading at an average of around $50 per barrel is finally succeeding in reversing the dramatic increases in US production that had been so troubling the Gulf’s oil-rich sheikhs.


Total US output has fallen by almost 600,000 barrels per day (bpd) since the end of the first quarter, with the biggest declines occurring recently as operators begin to crack under the financial pressure caused by Opec’s squeeze on prices. By next year, the US government expects output to decline to an average of 8.6m bpd, down from an average of 9.3m bpd in 2015.


According to Mark Papa, the former head of US shale oil specialist operator EOG Resources, this is just the beginning of the downturn in North America. Speaking at the annual Oil and Money conference in London this week, Mr Papa said: “We are about to see a pretty dramatic decline in US production growth.”


The insurmountable problem the US shale oil industry faces is that it is too highly dependent on debt and too reliant on crude trading above $60 per barrel to remain profitable. Break-even prices in America’s most productive areas, such as the Eagle Ford and Bakken, are thought to range from $54 to almost $70 a barrel, which currently means producers are operating at a loss, living in hope that Opec finally relents and cuts production.




In these circumstances the only thing keeping many US drillers afloat is debt, which up until now has been cheap and plentiful.

According to the data provider Factset, the amount of debt held by US oil and gas producers has ballooned to almost $170bn (£111bn) this year, compared with $81bn five years ago. But the cost of servicing that debt has also increased exponentially after a number of operators saw their ratings reduced to junk.

Opec now only has to maintain its fragile cohesion and push a little harder for the entire shale oil industry in the US to fold.

However, the group of 12 mainly Middle Eastern oil producers is itself feeling the pain of lower oil prices. Its wealthiest members, such as Saudi Arabia, the United Arab Emirates and Kuwait, are having to fall back on their foreign currency reserves for the first time in almost 20 years to make up for the shortfall in revenues.

Poorer member countries such as Venezuela, Algeria and Nigeria are now at economic breaking point. Without vast sovereign wealth funds and an abundance of cheap oil, they are close to buckling and are demanding that Opec meets to revise its current strategy.

Although Opec’s secretary general has called for a meeting of oil experts in Vienna later this month, it is extremely unlikely that ministers from the group will gather before their next scheduled date in December. Meanwhile, Saudi Arabia has continued to pump at record rates above 10.5m bpd, a strategy which is making a mockery of Opec’s overall production ceiling of 30.5m bpd.

And then there is Iran and Iraq. Combined, these close political allies in the Middle East pose the biggest challenge to Saudi Arabia’s dominance of Opec. However, both countries desperately need higher oil prices to help shore up their battered economies.

Baghdad has compensated for falling oil prices by pumping more crude. The second largest producer in Opec is now pumping around 4m bpd of crude to replenish its dwindling foreign currency reserves, which have fallen by around 20pc this year.

Iran is also champing at the bit to increase production – with the end in sight for its economic isolation from the rest of the world. According to the Iranian government, the country could increase oil production by around 500,000 barrels per day within a few months of economic sanctions being fully lifted. The Islamic republic is already laying the foundations for a return of international oil companies, which could help to boost output.

Top oil official Seyed Mehdi Hosseini told a room packed with Western executives at the Oil and Money conference that Tehran was ready to offer 50 new projects to international investors. Any significant increase in Iranian oil supply would add to the current oversupply in markets, pushing prices even lower.

Tarek Fatah in Gujarat

The end of Wahhabism? Saudi Arabia may go broke soon

Ambrose Evans Pritchard in The Telegraph

If the oil futures market is correct, Saudi Arabia will start running into trouble within two years. It will be in existential crisis by the end of the decade.

The contract price of US crude oil for delivery in December 2020 is currently $62.05, implying a drastic change in the economic landscape for the Middle East and the petro-rentier states.

The Saudis took a huge gamble last November when they stopped supporting prices and opted instead to flood the market and drive out rivals, boosting their own output to 10.6m barrels a day (b/d) into the teeth of the downturn.

Bank of America says OPEC is now "effectively dissolved". The cartel might as well shut down its offices in Vienna to save money.

If the aim was to choke the US shale industry, the Saudis have misjudged badly, just as they misjudged the growing shale threat at every stage for eight years. "It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run," said the Saudi central bank in its latest stability report.

"The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience," it said.

One Saudi expert was blunter. "The policy hasn't worked and it will never work," he said.

By causing the oil price to crash, the Saudis and their Gulf allies have certainly killed off prospects for a raft of high-cost ventures in the Russian Arctic, the Gulf of Mexico, the deep waters of the mid-Atlantic, and the Canadian tar sands.

Consultants Wood Mackenzie say the major oil and gas companies have shelved 46 large projects, deferring $200bn of investments.

The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.

Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. "We've driven down drilling costs by 50pc, and we can see another 30pc ahead," said John Hess, head of the Hess Corporation.

It was the same story from Scott Sheffield, head of Pioneer Natural Resources. "We have just drilled an 18,000 ft well in 16 days in the Permian Basin. Last year it took 30 days," he said.

The North American rig-count has dropped to 664 from 1,608 in October but output still rose to a 43-year high of 9.6m b/d June. It has only just begun to roll over. "The freight train of North American tight oil has kept on coming," said Rex Tillerson, head of Exxon Mobil.

He said the resilience of the sister industry of shale gas should be a cautionary warning to those reading too much into the rig-count. Gas prices have collapsed from $8 to $2.78 since 2009, and the number of gas rigs has dropped 1,200 to 209. Yet output has risen by 30pc over that period.

Until now, shale drillers have been cushioned by hedging contracts. The stress test will come over coming months as these expire. But even if scores of over-leveraged wild-catters go bankrupt as funding dries up, it will not do OPEC any good.

The wells will still be there. The technology and infrastructure will still there. Stronger companies will mop up on the cheap, taking over the operations. Once oil climbs back to $60 or even $55 - since the threshold keeps falling - they will crank up production almost instantly.

OPEC now faces a permanent headwind. Each rise in price will be capped by a surge in US output. The only constraint is the scale of US reserves that can be extracted at mid-cost, and these may be bigger than originally supposed, not to mention the parallel possibilities in Argentina and Australia, or the possibility for "clean fracking" in China as plasma pulse technology cuts water needs.

Mr Sheffield said the Permian Basin in Texas could alone produce 5-6m b/d in the long-term, more than Saudi Arabia's giant Ghawar field, the biggest in the world.

Saudi Arabia is effectively beached. It relies on oil for 90pc of its budget revenues. There is no other industry to speak of, a full fifty years after the oil bonanza began.

Citizens pay no tax on income, interest, or stock dividends. Subsidized petrol costs twelve cents a litre at the pump. Electricity is given away for 1.3 cents a kilowatt-hour. Spending on patronage exploded after the Arab Spring as the kingdom sought to smother dissent.

The International Monetary Fund estimates that the budget deficit will reach 20pc of GDP this year, or roughly $140bn. The 'fiscal break-even price' is $106.

Far from retrenching, King Salman is spraying money around, giving away $32bn in a coronation bonus for all workers and pensioners.

He has launched a costly war against the Houthis in Yemen and is engaged in a massive military build-up - entirely reliant on imported weapons - that will propel Saudi Arabia to fifth place in the world defence ranking.

The Saudi royal family is leading the Sunni cause against a resurgent Iran, battling for dominance in a bitter struggle between Sunni and Shia across the Middle East. "Right now, the Saudis have only one thing on their mind and that is the Iranians. They have a very serious problem. Iranian proxies are running Yemen, Syria, Iraq, and Lebanon," said Jim Woolsey, the former head of the US Central Intelligence Agency.

Money began to leak out of Saudi Arabia after the Arab Spring, with net capital outflows reaching 8pc of GDP annually even before the oil price crash. The country has since been burning through its foreign reserves at a vertiginous pace.

The reserves peaked at $737bn in August of 2014. They dropped to $672 in May. At current prices they are falling by at least $12bn a month.

Khalid Alsweilem, a former official at the Saudi central bank and now at Harvard University, said the fiscal deficit must be covered almost dollar for dollar by drawing down reserves.

The Saudi buffer is not particularly large given the country fixed exchange system. Kuwait, Qatar, and Abu Dhabi all have three times greater reserves per capita. "We are much more vulnerable. That is why we are the fourth rated sovereign in the Gulf at AA-. We cannot afford to lose our cushion over the next two years," he said.

Standard & Poor's lowered its outlook to "negative" in February. "We view Saudi Arabia's economy as undiversified and vulnerable to a steep and sustained decline in oil prices," it said.

Mr Alsweilem wrote in a Harvard report that Saudi Arabia would have an extra trillion of assets by now if it had adopted the Norwegian model of a sovereign wealth fund to recyle the money instead of treating it as a piggy bank for the finance ministry. The report has caused storm in Riyadh.

"We were lucky before because the oil price recovered in time. But we can't count on that again," he said.

OPEC have left matters too late, though perhaps there is little they could have done to combat the advances of American technology.

In hindsight, it was a strategic error to hold prices so high, for so long, allowing shale frackers - and the solar industry - to come of age. The genie cannot be put back in the bottle.

The Saudis are now trapped. Even if they could do a deal with Russia and orchestrate a cut in output to boost prices - far from clear - they might merely gain a few more years of high income at the cost of bringing forward more shale production later on.

Yet on the current course their reserves may be down to $200bn by the end of 2018. The markets will react long before this, seeing the writing on the wall. Capital flight will accelerate.

The government can slash investment spending for a while - as it did in the mid-1980s - but in the end it must face draconian austerity. It cannot afford to prop up Egypt and maintain an exorbitant political patronage machine across the Sunni world.

Social spending is the glue that holds together a medieval Wahhabi regime at a time of fermenting unrest among the Shia minority of the Eastern Province, pin-prick terrorist attacks from ISIS, and blowback from the invasion of Yemen.

Diplomatic spending is what underpins the Saudi sphere of influence caught in a Middle East version of Europe's Thirty Year War, and still reeling from the after-shocks of a crushed democratic revolt.

We may yet find that the US oil industry has greater staying power than the rickety political edifice behind OPEC.

Perhaps the world's conspiracy theorists have been right all along

Alex Proud in The Telegraph
 
We used to laugh at conspiracy theorists, but from Fifa to banking scandals and the Iraq War, it seems they might have been on to something after all, says Alex Proud


'I want to believe': Mulder and Scully (David Duchovny and Gillian Anderson) in The X Files Photo: 20th Century Fox
 

Conspiracy theories used to be so easy.

You’d have your mate who, after a few beers, would tell you that the moon landings were faked or that the Illuminati controlled everything or that the US government was holding alien autopsies in Area 51. And you’d be able to dismiss this because it was all rubbish.

Look, you’d say, we have moon rock samples and pictures and we left laser reflectors on the surface and... basically you still don’t believe me but that’s because you’re mad and no proof on earth (or the moon) would satisfy you.

It’s true that there was always the big one which wasn’t quite so easily dismissed. This was the Kennedy assassination - but here you could be fairly sure that the whole thing was a terrible, impenetrable murky morass. You knew that some things never would be known (or would be released, partially redacted by the CIA, 200 years in the future). And you knew that whatever the truth was it was probably a bit dull compared to your mate’s flights of fantasy involving the KGB, the Mafia and the military-industrial complex. Besides, it all made for a lot of very entertaining films and books.

Photo: Reuters

This nice, cozy state of affairs lasted until the early 2000s. But then something changed. These days conspiracy theories don’t look so crazy and conspiracy theorists don’t look like crackpots. In fact, today’s conspiracy theory is tomorrow’s news headlines. It’s tempting, I suppose, to say we live in a golden age of conspiracy theories, although it’s only really golden for the architects of the conspiracies. From the Iraq war to Fifa to the banking crisis, the truth is not only out there, but it’s more outlandish than anything we could have made up.
 
Of course, our real-life conspiracies aren’t much like The X-Files – they’re disappointingly short on aliens and the supernatural. Rather, they’re more like John Le Carre books. Shady dealings by powerful people who want nothing more than to line their profits at the expense of others. The abuse of power. Crazy ideologues who try and create their own facts for fun and profit. Corporations supplanting governments via regulatory capture.

So, what are some of our biggest conspiracies?

The Iraq War

The most disgusting abuse of power in a generation and a moral quagmire that never ends. America is attacked by terrorists and so, declares war on a country that had nothing whatsoever to do with the attacks, while ignoring an oil rich ally which had everything to do with them. The justification for war is based on some witches’ brew of faulty intelligence, concocted intelligence and ignored good intelligence. Decent people are forced to lie on an international stage. All sensible advice is ignored and rabid neo-con draft dodgers hold sway on military matters. The UK joins this fool’s errand for no good reason. Blood is spilled and treasure is spent.

The result is a disaster that was predicted only by Middle Eastern experts, post-conflict planners and several million members of the public. Thousands of allied troops and hundreds of thousands of blameless Iraqis are killed, although plenty of companies and individuals benefit from the US dollars that were shipped out, literally, by the ton. More recently, Iraq, now in a far worse state than it ever was under any dictator, has become an incubator for more terrorists, which is a special kind of geopolitical irony lost entirely on the war’s supporters.

And yet, we can’t really bring ourselves to hold anyone accountable. Apportioning responsibility would be difficult, painful and inconvenient, so we shrug as the men behind all this enjoy their well-upholstered retirements despite being directly and personally responsible for hundreds of thousands of deaths and trillions of wasted dollars. And the slow drip, drip of revelations continues, largely ignored by the public, despite the horrendous costs which (in the UK) could have been spent on things like the NHS or properly equipping our armed forces.

Fifa

The conspiracy du jour. We always knew Fifa was shonky and bribey, but most of us thought the more outlandish claims were just that. Not so. As it turns out, Fifa is a giant corruption machine and it now looks like every World Cup in the last three decades, even the ones we were cool about, like South Africa, could have been fixes.

Photo: AFP

On the plus side, it seems that something may be done, but it’ll be far too late to help honest footballing nations who missed their moment in the sun. For those who say "it’s only a stupid sport", well, recently we’ve heard accusations of arms deals for votes involving... wait for it... Saudi Arabia. The Saudi connection makes me wonder if, soon, we’ll be looking a grand unified conspiracy theory which brings together lots of other conspiracy theories under one corrupt, grubby roof.

The banking crisis

A nice financial counterpoint to Iraq. Virtually destroy the western financial system in the name of greed. Get bailed out by the taxpayers who you’ve been ripping off. And then carry on as if nothing whatsoever has happened. No jail, no meaningful extra regulation, the idea of being too big to fail as much of a joke as it was in 2005. Not even an apology. In fact, since the crisis you caused, things have got much better for you – and worse for everyone else. Much like Iraq, no-one has been held responsible or even acknowledged any wrongdoing. Again, this is partially because it’s so complicated and hard – but mainly because those who caused the crisis are so well represented in the governments of the countries who bailed them out. Oh, and while we’re at it, the banks played a part in the Fifa scandal. As conspiracy theorists will tell you, everything is connected.

Paedophiles

This one seems like a particularly dark and grisly thriller. At first it was just a few rubbish light entertainers. Then it was a lot more entertainers. Then we had people muttering about the political establishment – and others counter-muttering don’t be ridiculous, that’s a conspiracy theory. But it wasn’t. Now,it’s a slow-motion train crash and an endless series of glacial government inquiries. The conspiracy theorists point out that a lot of real stuff only seems to come out after the alleged perpetrators are dead or so senile it no longer matters. It’s hard to disagree with them. It’s also hard to imagine what kind of person would be so in thrall to power that they’d cover up child abuse.

And the rest

Where do you start? We could look at the EU and pick anything from its rarely signed-off accounts to the giant sham that let Greece join the Euro in the first place. We could look at UK defence procurement – and how we get so much less bang for our buck than France. We could peer at the cloying, incestuous relationship between the UK’s political class and its media moguls and how our leaders still fawn over a man whose poisonous control over so much of our media dates back to dodgy deal in 1981 that was denied for 30 years. We could look at the NSA and its intimate/ bullying relationship with tech companies. And we could go on and on and on.

But actually what we should be thinking is that a lot of this is what happens what you dismantle regulatory frameworks. This is what happens when you let money run riot and you allow industries to police themselves. This is what happens when the rich and powerful are endlessly granted special privileges, celebrated and permitted or even encouraged to place themselves above the law. And this is what happens when ordinary people feel bored by and excluded from politics, largely because their voices matter so little for the reasons above. Effectively, we are all living in Italy under Silvio Berlusconi. What’s the point in anything?

But actually, there is some hope. While the number of rich and powerful people who think they can get away with anything has undoubtedly grown, technology has made leaking much easier. Wikileaks may not be perfect, but it’s a lot better than no leaks at all. The other thing that gives me succour is the public’s view of the bankers. We still hate them, which is absolutely as it should be. And slowly this contempt is starting to hurt the masters of the universe. It’s notable that, recently, banking has started tumbling down the down the list of desirable careers. So, I suppose the solution is simple: we need more regulation, we need more transparency and we need more public shame and disgust. We might even get the last two; I’m less hopeful about the first.

In the X-Files, Fox Mulder’s famous catchphrase was, “I want to believe” but that’s because the conspiracy theories he dealt with were rather good fun. Ours, by contrast, tend to involve an endless procession of wealthy old men abusing their power. So I don’t want to believe any more. I want my kids to grow up in a world where conspiracy theories are something you laugh at.

Now the truth emerges: how the US fuelled the rise of Isis in Syria and Iraq

Seumas Milne in The Guardian

The war on terror, that campaign without end launched 14 years ago by George Bush, is tying itself up in ever more grotesque contortions. On Monday the trial in London of a Swedish man, Bherlin Gildo, accused of terrorism in Syria, collapsed after it became clear British intelligence had been arming the same rebel groups the defendant was charged with supporting.

The prosecution abandoned the case, apparently to avoid embarrassing the intelligence services. The defence argued that going ahead with the trial would have been an “affront to justice” when there was plenty of evidence the British state was itself providing “extensive support” to the armed Syrian opposition.

That didn’t only include the “non-lethal assistance” boasted of by the government (including body armour and military vehicles), but training, logistical support and the secret supply of “arms on a massive scale”. Reports were cited that MI6 had cooperated with the CIA on a “rat line” of arms transfers from Libyan stockpiles to the Syrian rebels in 2012 after the fall of the Gaddafi regime.

Clearly, the absurdity of sending someone to prison for doing what ministers and their security officials were up to themselves became too much. But it’s only the latest of a string of such cases. Less fortunate was a London cab driver Anis Sardar, who was given a life sentence a fortnight earlier for taking part in 2007 in resistance to the occupation of Iraq by US and British forces. Armed opposition to illegal invasion and occupation clearly doesn’t constitute terrorism or murder on most definitions, including the Geneva convention.

But terrorism is now squarely in the eye of the beholder. And nowhere is that more so than in the Middle East, where today’s terrorists are tomorrow’s fighters against tyranny – and allies are enemies – often at the bewildering whim of a western policymaker’s conference call.

For the past year, US, British and other western forces have been back in Iraq, supposedly in the cause of destroying the hyper-sectarian terror group Islamic State (formerly known as al-Qaida in Iraq). This was after Isis overran huge chunks of Iraqi and Syrian territory and proclaimed a self-styled Islamic caliphate.

The campaign isn’t going well. Last month, Isis rolled into the Iraqi city of Ramadi, while on the other side of the now nonexistent border its forces conquered the Syrian town of Palmyra. Al-Qaida’s official franchise, the Nusra Front, has also been making gains in Syria.

Some Iraqis complain that the US sat on its hands while all this was going on. The Americans insist they are trying to avoid civilian casualties, and claim significant successes. Privately, officials say they don’t want to be seen hammering Sunni strongholds in a sectarian war and risk upsetting their Sunni allies in the Gulf.

A revealing light on how we got here has now been shone by a recently declassified secret US intelligence report, written in August 2012, which uncannily predicts – and effectively welcomes – the prospect of a “Salafist principality” in eastern Syria and an al-Qaida-controlled Islamic state in Syria and Iraq. In stark contrast to western claims at the time, the Defense Intelligence Agency document identifies al-Qaida in Iraq (which became Isis) and fellow Salafists as the “major forces driving the insurgency in Syria” – and states that “western countries, the Gulf states and Turkey” were supporting the opposition’s efforts to take control of eastern Syria.

Raising the “possibility of establishing a declared or undeclared Salafist principality”, the Pentagon report goes on, “this is exactly what the supporting powers to the opposition want, in order to isolate the Syrian regime, which is considered the strategic depth of the Shia expansion (Iraq and Iran)”.

Which is pretty well exactly what happened two years later. The report isn’t a policy document. It’s heavily redacted and there are ambiguities in the language. But the implications are clear enough. A year into the Syrian rebellion, the US and its allies weren’t only supporting and arming an opposition they knew to be dominated by extreme sectarian groups; they were prepared to countenance the creation of some sort of “Islamic state” – despite the “grave danger” to Iraq’s unity – as a Sunni buffer to weaken Syria.

That doesn’t mean the US created Isis, of course, though some of its Gulf allies certainly played a role in it – as the US vice-president, Joe Biden, acknowledged last year. But there was no al-Qaida in Iraq until the US and Britain invaded. And the US has certainly exploited the existence of Isis against other forces in the region as part of a wider drive to maintain western control.

The calculus changed when Isis started beheading westerners and posting atrocities online, and the Gulf states are now backing other groups in the Syrian war, such as the Nusra Front. But this US and western habit of playing with jihadi groups, which then come back to bite them, goes back at least to the 1980s war against the Soviet Union in Afghanistan, which fostered the original al-Qaida under CIA tutelage.

It was recalibrated during the occupation of Iraq, when US forces led by General Petraeus sponsored an El Salvador-style dirty war of sectarian death squads to weaken the Iraqi resistance. And it was reprised in 2011 in the Nato-orchestrated war in Libya, where Isis last week took control of Gaddafi’s home town of Sirte.

In reality, US and western policy in the conflagration that is now the Middle East is in the classic mould of imperial divide-and-rule. American forces bomb one set of rebels while backing another in Syria, and mount what are effectively joint military operations with Iran against Isis in Iraq while supporting Saudi Arabia’s military campaign against Iranian-backed Houthi forces in Yemen. However confused US policy may often be, a weak, partitioned Iraq and Syria fit such an approach perfectly.

What’s clear is that Isis and its monstrosities won’t be defeated by the same powers that brought it to Iraq and Syria in the first place, or whose open and covert war-making has fostered it in the years since. Endless western military interventions in the Middle East have brought only destruction and division. It’s the people of the region who can cure this disease – not those who incubated the virus.

Are Religion and Nationalism False Subconsciousness?

Courtesy - Rawal TV - Password ep 68

Who is bombing whom in the Middle East?

Robert Fisk in The Independent

Let me try to get this right. The Saudis are bombing Yemen because they fear the Shia Houthis are working for the Iranians. The Saudis are also bombing Isis in Iraq and the Isis in Syria. So are the United Arab Emirates. The Syrian government is bombing its enemies in Syria and the Iraqi government is also bombing its enemies in Iraq. America, France, Britain, Denmark, Holland, Australia and – believe it or not – Canada are bombing Isis in Syria and Isis in Iraq, partly on behalf of the Iraqi government (for which read Shia militias) but absolutely not on behalf of the Syrian government.

The Jordanians and Saudis and Bahrainis are also bombing Isis in Syria and Iraq because they don’t like them, but the Jordanians are bombing Isis even more than the Saudis after their pilot-prisoner was burned to death in a cage. The Egyptians are bombing parts of Libya because a group of Christian Egyptians had their heads chopped off by what might – notionally – be the same so-called Islamic State, as Isis refers to itself. The Iranians have acknowledged bombing Isis in Iraq – of which the Americans (but not the Iraqi government) take a rather dim view. And of course the Israelis have several times bombed Syrian government forces in Syria but not Isis (an interesting choice, we’d all agree). Chocks away!

It amazes me that all these warriors of the air don’t regularly crash into each other as they go on bombing and bombing. And since Lebanon’s Middle East Airlines is the only international carrier still flying over Syria – but not, thank heavens, over Isis’s Syrian capital of Raqqa – I’m even more amazed that my flights from Beirut to the Gulf have gone untouched by the blitz boys of so many Arab and Western states as they career around the skies of Mesopotamia and the Levant.

The sectarian and theological nature of this war seems perfectly clear to all who live in the Middle East – albeit not to our American chums. The Sunni Saudis are bombing the Shia Yemenis and the Shia Iranians are bombing the Sunni Iraqis. The Sunni Egyptians are bombing Sunni Libyans, it’s true, and the Jordanian Sunnis are bombing Iraqi Sunnis. But the Shia-supported Syrian government forces are bombing their Sunni Syrian enemies and the Lebanese Hezbollah – Shia to a man – are fighting the Syrian President Bashar al-Assad’s Sunni enemies, along with Iranian Revolutionary Guards and an ever-larger number of Afghan Shia men in Syrian uniforms.

And if you want to taste the sectarianism of all this, just take a look at Saudi Arabia’s latest request to send more Pakistani troops to protect the kingdom (and possibly help to invade Yemen), which came from the new Saudi Crown Prince and Defence Minister Mohammed bin Salman who at only 34 is not much older than his fighter pilots. But the Saudis added an outrageous second request: that the Pakistanis send only Sunni Muslim soldiers. Pakistani Shia Muslim officers and men (30 per cent of the Pakistani armed forces) would not be welcome.

It’s best left to that fine Pakistani newspaper The Nation – and the writer Khalid Muhammad – to respond to this sectarian demand. “The army and the population of Pakistan are united for the first time in many years to eliminate the scourge of terrorism,” Muhammad writes. But “the Saudis are now trying to not only divide the population, but divide our army as well. When a soldier puts on a uniform, he fights for the country that he calls home, not the religious beliefs that they carry individually… Do they (the Saudis) believe that a professional military like Pakistan… can’t fight for a unified justified cause? If that is the case then why ask Pakistan to send its armed forces?”

It’s worth remembering that Pakistani soldiers were killed by the Iraqi army in the battle for the Saudi town of Khafji in 1991. Were they all Sunnis, I wonder?

And then, of course, there are the really big winners in all this blood, the weapons manufacturers. Raytheon and Lockheed Martin supplied £1.3bn of missiles to the Saudis only last year. But three years ago, Der Spiegel claimed the European Union was Saudi Arabia’s most important arms supplier and last week France announced the sale of 24 Rafale fighter jets to Qatar at a cost of around £5.7bn. Egypt has just bought another 24 Rafales.

It’s worth remembering at this point that the Congressional Research Services in the US estimate that most of Isis’s budget comes from “private donors” in – you guessed it – Saudi Arabia, Qatar, the UAE and Kuwait.

But blow me down if the Yanks are back to boasting. More than a decade after “Mission Accomplished”, General Paul Funk (in charge of reforming the Iraqi army) has told us that “the enemy is on its knees”. Another general close to Barack Obama says that half of the senior commanders in Isis have been liquidated. Nonsense. But it’s worth knowing just how General Pierre de Villiers, chief of the French defence staff, summed up his recent visits to Baghdad and Iraqi Kurdistan. Iraq, he reported back to Paris, is in a state of “total decay”. The French word he used was “decomposition”. I suspect that applies to most of the Middle East.