By David Haggith, the Great Recession Blog.
The fate of oil companies and nations hangs in the balance of oil
prices. Russia could go broke. Some think that’s by US design. Saudi
Arabia could experience its Arab Spring if oil prices remain too low too
long. And OPEC is dead. That’s the biggest news in this new century for
oil.
The House of Saud has stated clearly many times now and again this
week in an even more emphatic manner that it intends to move the oil
market from decades of OPEC price manipulation to a raw
supply-and-demand equation. Rigging the price of oil was the raison d’être
of the cartel known as the Organization of Petroleum Exporting
Countries, and that function has now ended. But people are slow to get
their heads around such big news.
Saudi Arabians enjoyed a tax-free environment as long as oil paid the
bills and cheap subsidized fuel. Huge revenue from oil enabled constant
pay-offs to the powerful that stabilized the state. All of that has
ended or is at risk of ending as the Saudis seek to rebalance their
state budget in the face of huge declines in revenue. So, changing the
pricing structure of oil is a perilous change of course for the House of
Saud, which tells you how serious they are about transforming the
market back to a free market.
It’s fraught with peril for all. Among oil companies and banks, it’s
not just the little leaguers that are