Could it have been better handled? Sure, for starters Saudis and the United States could have "tuned up" quotas between themselves to spare oil market an unprecedented shock it continues to experience. In the end, oil market IS a global market. But it is what it is and we all have to look at the reality of it all, because once Russia entered the fray it became not just about the oil price but the change of the rules of global oil production and trade. And I mean real change. This change did happen, as was predicted, because the issue became not HOW Russia will wipe the floor with Saudis, that was clear from the get go, the issue was HOW Russia will convince the United States to "join the party" and try to behave itself. In the end, as I stated not for once, for Russia the United States is a strategic "partner" and another superpower for who different set of rules applies. In other words: Russia can harm the United States, but she is absolutely not interested in burying the United States because understands catastrophic consequences of such a collapse. Per Saudis, Russia doesn't care if this country disintegrates or survives, both scenarios can be handled. But oil, well, is a separate issue. Russia wanted global cartel, OPEC++ which would see the United States joining in which means a radical change of the game, in which the United States has responsibilities, not just interests. Well, guess what!?
The United States is ready to help Mexico reach its production cut quota as part of the tentative OPEC+ deal, Mexico’s President Andres Manuel Lopez Obrador said on Friday, while the global pact to reduce production was in a kind of Mexican standoff early on Friday as Mexico was still balking at the large cuts it is asked to make. Lopez Obrador spoke with U.S. President Donald Trump on Thursday and the United States agreed to cut 250,000 bpd for Mexico to help it reach the 400,000-bpd cut OPEC+ is asking of it, the Mexican president said at a news conference on Friday, noting that he had informed OPEC+ of this development.
That is much better. Not quite there yet, but much, much better. Trump called Putin and Ria gave a dry summary (in Russian) of that conversation which, it seems, was rather pleasant as it should be. Russia was getting what she wanted, getting US at the table. Well, of course, all this is very reminiscent of feast during the plague, but it wasn't Russia who drove the market to this state. Some even call it Russia's Pyrrhic Victory, and they may even have a point, but in the larger scheme of things very many would love today to be in the position of Russia.
NEW YORK (Reuters) - Major U.S. lenders are preparing to become operators of oil and gas fields across the country for the first time in a generation to avoid losses on loans to energy companies that may go bankrupt, sources aware of the plans told Reuters. JPMorgan Chase & Co, Wells Fargo & Co, Bank of America Corp and Citigroup Inc are each in the process of setting up independent companies to own oil and gas assets, said three people who were not authorized to discuss the matter publicly. The banks are also looking to hire executives with relevant expertise to manage them, the sources said.
It is almost anti-climactic. And as rumor has it, the United States will cut something around 1.8 bpd in addition to taking up part of Mexico's quota. Judging by a surprising lack of new updates on Yahoo Finance something IS afoot there. Obviously, all of it is too little, too late and funeral pyres for oil industries of many countries may start burning pretty soon, but then again--nothing personal, just business. It is just the start of the process and who knows where will it lead. Oil prices are crashing no matter what now and we all know what it means, but at least some fuzzy shape of the global oil cartel begins to emerge and that is exactly what Russia demanded. In a funny twist, Putin and Trump also discussed in their phone call exploration of space. Why not. Russia has some interest in seeing the United States getting used to new world order. As Scott Ritter noted:
Russia has the US between a rock and a hard place. The only question that remains is how much pain does Russia intend to inflict, and at what cost? It is unrealistic to expect Trump to exert influence on a fragile US oil market. But by sustaining the pressure generated by free market realities, Russia may be able to leverage any relief it can provide for long-term US sanctions relief. This is the real game being played, and should be kept in mind as the G20 gathers to discuss the future of global oil markets.
You see, once the military threat from the United States was addressed in the most dramatic way, new rules started to get enforced. Indeed, Russia can handle any sanctions the US can introduce, but Iran needs urgent help--she need IMF loan to fight Covid-19 pandemic, she also needs all help she can get including from EU which is beginning to cautiously bypass US sanctions on Iran. Venezuela needs help, Yemen's slaughter supported by the US also needs to stop. So, you see--there are so many issues to discuss between Russia and the United States. As old Arabic proverb says: if the mountain doesn't go to Mohamed, Mohamed goes to mountain. Russians are proud people but when is needed they go to mountain and when they go... well, you know this blog for 6 years, don't you? It documented it thoroughly. It is a new brave world out there and we all need to survive its unfolding. Playing by the common sense rules increases chances of survival dramatically. And that is the name of the game.