
The Saudis Have a High-Stakes Plan to Win the Global Oil War - Tortoise
https://www.bloomberg.com/news/articles/2020-03-18/the-saudi-crown-prince-s-plan-to-win-the-global-oil-war
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siscia
I don't get it.

It is estimated that below 50$/barrel Saudi Arabia is basically pushing wealth
out of their country. (Balance of payment in negative, it is right?.)

And below 80$/barrel they are running the country at a deficit.

They are now selling to 30$/barrel.

What is the strategy here? Push all "high-tech" producers out of the market
and shut up the price again? How long can they last? And how much it will
cost?

~~~
aliswe
FWIW, I don't like the statement "KSA needs 80USD per barrel to break even".
It's too blunt, and obscures lots of variables, including their bond market,
their megaprojects that aren't really being paid for (yet) as they haven't
started at full scale, fluctuations of external work forces, the operations in
Yemen, etc etc ... were these parameters included or not? Were they
compensated for in any way? I don't know the answer to those questions,
although a lot of people must do. In any case, those parameters have
undisputably changed since this claim was first made. And I really doubt "the
Saudis" (... all 30 million of them ...) would agree to the 80USD per barrel
figure.

Also, it most probably means that AT CURRENT PRODUCTION VOLUMES, ie.
artificially low, they would need x USD per barrels. With more production,
whatever that figure was, it will now be lower.

~~~
DyslexicAtheist
what kind of mega projects are they involved in outside oil? I learned that
they invested 40B in the SoftBank fund. Is this what you're referring to?
Where would I look or what should I read to learn more about this? thanks

~~~
PopeDotNinja
They're building a bunch of new cities:

[https://www.index-saudi.com/more-info/saudi-mega-
projects/](https://www.index-saudi.com/more-info/saudi-mega-projects/)

~~~
aliswe
Please note that these projects are not all governmentally funded and thus do
not burden the state budget (affecting the x-usd-per-barrel-or-bust number)
per se - Jeddah Tower is built "privately" by prince Waleed and his company if
I'm not mistaken.

But, the list does match the OP title "The Saudis ..." ... hehe ...

~~~
edmundsauto
It was my understanding there isn't much difference between the prince and the
company and the country. Is that inaccurate?

~~~
PopeDotNinja
If the state owned oil companies pay a lot to the royal family, that's kind of
like you owning the company and setting your own salary to whatever you want.
There's a difference on paper, but not in spirit (to me anyway).

~~~
aliswe
Just as an example, Prince Waleeds fortune is more or less self made.
Furthermore, his company "Kingdom Holding" (IIRC) is to my knowledge not owned
by the government (but it's a public company so that big investment fund - is
it called the PIF? - could theoretically buy KH stock.)

Some of those real estate projects look private to me.

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siruncledrew
Saudi Arabia has shifted away from thinking like manufacturers to thinking
like investors. Oil doesn’t matter to them - it does now, but it doesn’t
psychologically. Wealth is what matters.

Oil is still their golden goose - their special “10x” or “unicorn” status
sauce. If the forecast for long-term global oil demand is losing steam in
light of desires to shift away from fossil fuels, then perhaps sooner is the
best time to sell those assets to accumulate wealth to save and invest in
other areas to grow more wealth (ex. Vision Fund).

IMO - the price war is a short game to fund pivots into different long games -
and as we all know, starting out with wealth to fund that is a nice situation
to have.

~~~
djmobley
At $30/barrel they’re selling oil at a loss, not building up wealth to invest
elsewhere.

~~~
D_Alex
No... the Saudi oil production costs are circa US$10/bbl, and their marginal
production costs (ie costs to produce _one more_ barrel) are circa US$3.00.

They are not selling at a loss, but they are not making enough to run their
country (that would take prices of ca US$80/bbl at the current rate).

~~~
w0utert
>> _They are not selling at a loss, but they are not making enough to run
their country_

So without further measures to run the country differently, that effectively
means they _are_ losing money and not 'building wealth', right?

~~~
charwalker
Oil is still profitable, just not enough to run the country.

Imagine it's a bunch of small restaurants. The Saudi place is owned by a large
family and is the biggest, leanest place running the highest profit but this
Russian crew is edging in with a place across the street. Both sets of owners
have deep pockets and can keep their place running for a while. Then the US is
the fancy food cart in the parking lot down the road that costs more per plate
and has less capacity but is right next to the office buildings so gets the
most attention at lunch.

The Saudis are still covering all costs and making money but the owners have
other big expenses that are draining their wallets. The drain is faster than
what the restaurant can earn but they would be worse off if it shut down for a
few months.

The Russians have muscled in and though not as lean are keeping up and still
covering costs (though it's a lot harder to see the cash flow, it's sketchy).

Then the food cart is running on really low margins and has no backing, it's
an independent place, but it is running profitable thanks to the lunch rush.
If it had to shut down it wouldn't be a huge loss each month in fixed costs
like rent as the trailer can be stored.

The Saudis and Russians want the food cart to go out of business asap so the
lunch customers have to come to them and bump their profits so they have to
stay open and but up big lunch deals, even if a virus is going around that
slows down the whole industry. Hopefully they can weather the drop in margins
until the food cart is no longer making money and gets put in storage (where
it will take a while to hire staff and bring back up to speed if it ever makes
it back out).

Then, it's an isolated price war between the Saudi and Russian owned places
until they recognize a duopoly and mutually leave prices high while still
pulling in the lunch crowd as they are the only options or tying to undermine
the other but at least the food cart is gone and the office workers are all
reliant on them for lunch.

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aussiegreenie
MSB has already lost. It is only a matter of time before he gets the Khashoggi
treatment.

He personally stole $100 Billion from his extended family and other Saudis.

[https://www.nytimes.com/2018/03/11/world/middleeast/saudi-
ar...](https://www.nytimes.com/2018/03/11/world/middleeast/saudi-arabia-
corruption-mohammed-bin-salman.html)

Saudi Aramco is only $101 Billion or half the "required" market cap of $200
Billion MSB needs to fund Saudi Arabia.

He is a deadman walking but so it Saudi Arabia.

"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my
son drives a Land Rover, his son will drive a Land Rover, but his son will
ride a came"

------
Maledictus
[http://archive.is/yevdh](http://archive.is/yevdh)

~~~
GrumpyNl
dead link

~~~
splintercell
Turn off your VPN

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woodandsteel
"Aramco, on the prospectus for its 2019 initial public offering, warned that
oil demand might peak within 20 years."

From what I read, it's going to be more like ten years from now. That because
in a another two or three years, battery prices will be low enough that ev
sticker prices will match ice ones, and that plus public policies will lead to
ev sales skyrocketing and ice sales plunging.

Saudi Arabia knows the big transition is coming, and is working as fast as it
can go get its economy out of oil. I don't see how it is going to be able to
do this fast enough to avoid financial disaster.

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LatteLazy
Driving everyone else bankrupt failed with fracking. Why would it work with
Russia?

~~~
rcMgD2BwE72F
Nothing needs to work with Russia, it is an excuse. Russia's oil output as %
of global production hasn't really changed for decades. It's is all about US
frackers, peak oil demand, and a prince's concern about his personal future.

~~~
LatteLazy
Even then, it failed before because fracking companies could shut down and
start back up without too much loss of capital. To me this reeks od trying the
same thing again and expecting a different result.

MBS seems to behave quite randomly. Maybe that's logical: being predictable is
dangerous. But that's the only explanation that fits here I think: he'll burn
1tn usd because no one would expect that!

Has anyone got a better logic to explain this? Does it suit Saudi to weaken
other OPEC members?

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neonate
[https://archive.md/yevdh](https://archive.md/yevdh)

------
LeoTinnitus
Who is that moron that wrote the article? Byzantine art of diplomacy? Saudia
Arabia never existed when the Byzantines did! Also the Byzantines weren't
known for their diplomacy.

It's like saying the prussians enagaged in Catholic meditative sessions.

~~~
aatharuv
If you're not a fluent English language speaker, you might want to look at a
dictionary before calling people morons.

In addition to its original definition as "what the Eastern Roman Empire
morphed into", it also means: "excessively convoluted" "highly complex,
intricate, and devious". These other definitions unsurprisingly are based on
what English language speakers thought of the Byzantines..

~~~
narag
Right, but it is nothing specific of English language.

Oh, and the original definition should be simply "born in Byzantium", now
Istambul.

