The recent shortfall in the oil prices divulges that Saudi Arabia is ready to take calculated risk in the relationships with USA that are already passing through tensions. This whole act is primarily executed with the intention to hurt the American Shale Industry.
Presently, U.S. and Saudi Arabia are standing against each other in a fresh war performing in Iraq and Syria. First time, the Saudi government has taken a serious and brave step by claiming their imperative position in the world of Oil industry and strategically withdrawal their investment from many of the fledgling shale companies of America.
Presently, the heavy fall in oil prices will bring a de facto tax cut for the American simultaneously and - if resisted - will strike dreadful impacts over Iran and Russia at a time When Washington is making efforts to build pressure on both sides.
The decrement in the oil prices will certainly not isolate the allies but definitely isolate a cob for the rivals and opponents for creating maximum trouble such as Iran and Russia, said by Deborah Gordon, director of the energy and climate programme at the Carnegie Endowment.
The Saudi administration is considering it as a core determinant for them,” she added. “They have certain interests without having to impair the people as they don’t like to spoil.”
The overall consumption of oil is going down but the demand is rising in the US overtime. The persistent decline in oil price would result in slipping the Saudi budget into deficit and pose a big question mark over the government stability. However, the government is not threatened with this instance as they have enough foreign exchange reserves that will help in sustaining, even during the period low revenue. The Saudi government informed their decision when the high tension is constantly rising between the relationships with U.S.
By taking a measure in oil prices reduction, Saudi government is trying to attain some political benefits and outcomes and it will be extremely welcomed in Washington. The slump in price will also paint negative picture over the Russian economy, which is already encountered with the number of sanctions directed by US and Europe due to their involvement in Ukraine.
To some extent, the decline in oil price will be taken as a benefit for the declining global economy as it is a good sign for China and Europe to strengthen their economy. They are the major clients of Saudi Arabia through which the country can manage its economical activities. Apart from shale industry, U.S is still a leading importer of Oil from Saudi Arabia.
Jason Bordoff, a former official in Obama’s administration stated; “For the US economy and US consumers, lower oil prices are a great thing. They will create winners and losers in different places. There is a downside. But the upside is greater than the downside.”
Former president George W Bush shared his views that there are no signs of conspiracy at both sides. However, the drop in prices policy is also designed to fairly damage the shale oil program, which could have proved to be noteworthy upheaval in the context of global energy throughout the decade
The plunge in prices for such level or even lower would put financial burden over the US shale producers and most of the producers considering to revert their investment if fall in prices will go further lower.
