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The Implications Of A Fractured U.S., Saudi Alliance

The Implications Of A Fractured U.S., Saudi Alliance

oil tanker

After the resurgence of the U.S. oil industry in recent years due to hydraulic fracking and the shale oil revolution, most thought the days of Middle Eastern oil producers, Saudi Arabia in particular, being able to threaten use of the so-called oil weapon as geopolitical leverage or even coercion were over. But that couldn’t be further from the truth.

Even though the U.S. is pumping oil at record levels, hitting 11 million barrels of oil per day, a rate that should have negated such a threat from ever resurfacing, it seems that Washington has also arguably shot global oil markets in the foot by re-imposing economic sanctions against Iran, with more sanctions slated to hit the Islamic Republic’s energy sector in just a matter of weeks.

The loss of Iranian barrels from global oil markets has already pushed prices well past $80 per barrel recently, and prices could break into the $90 plus range after November. Added to the fray are long term production problems in major OPEC producers Venezuela, Nigeria and Libya – in effect offsetting the ramp-up in U.S. production and the ability for shale producers to play the coveted role of oil markets swing producer. Now Saudi Arabia has taken at least marginal control of oil markets back again – not a comforting prospect for many.

Saudi Arabia said on Sunday it would retaliate against any punitive measures from the U.S. linked to the disappearance of Washington Post columnist Jamal Khashoggi with even “stronger ones.”  In what Bloomberg News called an implicit reference to the kingdom’s petroleum wealth, the Saudi statement noted the Saudi economy “has an influential and vital role in the global economy.”

1973 oil embargo remembered

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