Any, even the most victorious war, inevitably entails losses. It will soon be 2 months since the beginning of Russia’s oil war. And information about the results of losses for the first month of combat already appeared.
According to the leading world experts whom the financial analysis website Bloomberg refer to, during the first month of combat Russia lost $6 billion. The losses of Saudi Arabia are much more – $27 billion.
At the same time, the currency reserves of the Saudis is the lowest it’s been since 2011, having fallen from more than $2 trillion down to $464 billion. The position of the dictator Prince Salman is aggravated by the huge debts of the state – 180 billion for the beginning of year and about 20 more that was borrowed in the first quarter of this year. Added to this, the state company “Aramco“, the world’s largest oil producer, owes about $300 billion more.
In total, these debts already exceed the Saudis’ gold reserves and their state budget, the revenue of which fluctuates around a third of one trillion dollars. It is easy to consider that in a year (with other things being equal) losses from the oil war just will be a sum similar to the country’s income. This proves that 90% of this income comes from oil exports and oil industry services, and the mono-economy is extremely vulnerable and forces the state to its knees far quicker and more effectively than the empty threats made by the ruler of this country.
The Minister of Finance of Saudi Arabia and the Bloomberg financial expert Ziad Daoud consider that in general the losses of the budget of Saudi Arabia will be $32 billion. This is a very optimistic forecast, which is understandable – the minister values his position and life, and Prince Salman has a heavy hand.
Much worse than the assessment of the International Monetary Fund (IMF), which reminds that it is possible to consolidate the country’s budget only if the price of Brent oil is $76.1 per barrel, in circumstance where today the benchmark is trading $50 cheaper.
“Saudi Arabia is in a very critical situation,” notes the chief economist of Abu Dhabi Commercial Bank Monica Malik. “We expect a further reduction in the country’s reserves, and in the second quarter the pressure exerted on them will amplify against the background of the low oil prices and a decrease in production volume. We believe that Riyadh will try to limit the decrease in reserves through market borrowing”.
Indeed, the country’s government unveiled plans to borrow $58 billion this year in order to cover the budget deficit. I will remind that this vicious circle for the last 4 years “ate” more than $1.5 trillion of the country’s gold and foreign exchange reserves. And what is happening now guarantees the Saudis even greater losses than in March.
The matter is that in response to Russia’s refusal to participate in the OPEC+ deal and Minister Novak’s demonstrative departure from the meeting held on March 4, on March 6 (Novak was persuaded to stay for two days) Riyadh promised to force all of Russia and president Putin personally to their knees, having flooded the whole world with cheap oil.
The threat is as emotional as it is stupid. The factories that were “sharpened” for Russian Urals oil will not reconfigure equipment for light Arab oil, especially in times of crisis, nor will they sever long-term contracts with Russia. And the market that the Saudis could supply their oil to is limited in volume and is declining even more due to the consumption crisis around the world.
Moreover, since the Saudis did not calculate the plans of Russia and the course of the ongoing oil war, they did not preoccupy themselves in advance with either the freight of the tanker fleet or the lease of oil storage facilities. As a result, the cost of transporting oil skyrocketed, and there is no place to store already extracted oil. Tankers have turned into very expensive oil storages, and Saudi oil is already offered on the market of Southern Europe at the price of $5 per barrel. Selling the oil in the EU at a discount of $10.25 compared to the price “Brent”, the Saudis sold their oil on the spot even for a dollar (the benchmark “Brent” fell below $10). And nevertheless, armadas of crowded tankers besiege all potential buyers.
About 1000 tankers with a deadweight from 50,000 tons to giant supertankers of half a million tons anchored themselves in the hope of a buyer. There are queues at the Panama Canal and Gibraltar, more than hundred tankers in the Strait of Singapore, about 150 off the coast of the Netherlands, tens at Malta, Greece, around the whole Europe. The US Coast Guard is forced to take tens of tankers from the American coast under their protection, some dozen more are coming to help, and more than 50 are currently being loaded up off the coast of not only Saudi Arabia, but also Qatar and the United Arab Emirates.
As a result, without waiting for May 1st, when the reduction in oil production within the framework of OPEC+ comes into effect, Riyadh reported an early reduction in its own production.
The prospect for the United States is no less doleful. According to Reuters, the Saudis have already delivered, or in the next few days will deliver, about 50 million barrels of oil to the coast of North America. The hedge fund manager Kyle Bass wrote on Twitter:
The Saudis and Russians have declared war against US shale energy companies. It seems they weren't happy with American energy independence. Storage full..largest glut in history..Saudis are sending us a 50 million barrel oil bomb. How negative will June crude go? #Oil #USOIL https://t.co/oiNfkI2pfM— ?Kyle Bass? (@Jkylebass) April 22, 2020
On May 5th Texas oil producers, which produce 48% of oil in the United States, will make the decision to reduce production and will make demands to the White House to save the industry. Low prices and crowded storages already led to the beginning of bankruptcies and even to supplementary payment by oil-extracting companies to buyers of oil. Oil supplies from Canada were reduced, and on Trump’s table there is a draft decree on the introduction of an embargo on oil imports. But it is already obvious that no restrictions are capable of returning the price to at least the level of $40 in the next months, which also won’t save US shale oil.
Only a “small victorious war” can save the situation, which is especially true for Trump, whose hopes of winning the election are fading at an incredible rate. It’s not a coincidence that they were already given the order to open fire at Iranian vessels that come “too close” the ships of the US Navy in the Persian Gulf. The trouble with this plan is that war in the Middle East certainly will raise oil prices not to $40, but up to $80 and $100. Only here the victory won’t be “small and victorious”. The Yankee be not able to overthrow the Iranian regime, as well as to occupy the country. But the entire region will instantly ignite – everyone will shoot at everyone and “nobody will leave offended”. Including also the Americans, who are very much not loved here. And not just Iran has enough anti-ship missiles, but even the Yemeni guerrillas also have a lot and they have already proved their ability to hit the mark.
Generally, our “American partners” and their “Middle Eastern friends” have serious problems and there is no clear plan to resolve them. Trump risks to lose the president’s chair, and Prince Salman risks to lose his life.
On this background, Moscow shows Olympic calm, and the Russian oil of the Urals brand is trading at about $20 per barrel and its sales are growing, including to China, where it displaces Middle Eastern oil. The northern ports of Russia work with a full load, delivering oil and oil products only on an advance-payment basis, to the ports of the European Union. Even Poland, which recently announced the rejection of Russian oil in favour of Saudi Arabia, currently expects 100,000 tons from Russia – a tanker from Ust-Luga is already on its way to Gdansk.
In general, for the first time in history, Russia shows a skill and ability not only to have a decisive influence on the global economy, but also to bear at the same time smaller, in comparison to competitors, losses. Not less important is the fact that “our western partners”, albeit reluctantly, get used to the thought that the golden times of the perestroika USSR and early Russia of the 90s were irrevocably consigned to the past. Today Russia has to be reckoned with not only as an armed force, but also as a major economic player.
As a result, in a world that will change dramatically after the coronavirus pandemic and the global economic crisis, Russia will not play the role that was prepared for it by Washington and Brussels. Of course, there are still many months of “fighting” and inevitable losses ahead, but for the first time in the last 40 years, the USSR-Russia does not give up its positions and successfully reclaims both its “place in the sun” and the right to its own path and independence.
REFERENCE: Russia has a gold reserve of more than $550 billion. What is even more important is that from March 1st to April 1st the National Welfare Fund of Russia grew from $123.14 billion to $165.38 billion, having shown growth of more than $42+ billion! It is not surprising that Russia can afford to carry out ‘combat’ for years without a fatal impact on the national economy, and its leadership can radiate a reinforced concrete confidence in victory. Unlike Saudi Arabia, the budget of Russia is being filled not only by petrodollars and comes from an oil price not of $71, but $42.
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