Saudi Arabia Lowers Oil Prices for Asia and Raises Prices for Europe

Saudi Arabia Lowers Oil Prices for Asia and Raises Prices for Europe

Saudi Arabia Lowers Oil Prices for Asia and Raises Prices for Europe

November 10, 2022 354 view(s)

Bloomberg reported that Saudi Arabia lowered oil prices by $0.40 per barrel for most of Asia as global economies slowdown. At the same time, Saudi Arabia raised the European oil price by $0.80 per barrel as the European economy also teeters on the brink of recession. The price for the United States remained unchanged. Saudi officials say the decisions about price changes came from several OPEC countries, not just Saudi Arabia. 


Why Would Saudi Arabia Give a Discount to Asia?


Saudi Arabia Lowers Oil Prices for Asia and Raises Prices for EuropeSaudi Arabia Lowers Oil Prices for Asia and Raises Prices for Europe

The top five global oil consumers are the United States, China, India, Russia, and Japan.  Four of the top five importers of Saudi oil are in Asia: China, Japan, South Korea, and India. The price changes came days after the media reported that India was increasing their oil imports from the sanctioned countries Russia and Iran to avoid shortages in winter. The seventh and thirteenth largest oil importers from Saudi Arabia are also BRICS members, South Africa and Brazil. 

The price drop benefits BRICS countries, China and India, the most. Saudi Arabia has already formally applied to join the BRICS. It repeatedly pledges allegiances to China despite U.S. objections. The Saudis reiterated their commitment to China again two weeks ago by calling China its, “most reliable partner supplier of crude oil.” Last March, the CEO of Aramco, Amin Nasser, said, “Ensuring the continuing security of China’s energy needs remains our highest priority-not for just the next five years, but for the next 50 and beyond.”

The timing of the price change is suspect. One month ago, OPEC slashed oil production by 2 million barrels per day (BPD). The Biden administration asked the Saudis to postpone the cut until after the election. Before the announcement, the Administration made some vague threats. The tone of the rhetoric from the Biden administration became bombastic and aggressive. “A cut would be viewed as a clear choice by Riyadh to side with Russia in the Ukraine war and that the move would weaken already-waning support in Washington for the kingdom,” said a White House official. After the announced cut, President Biden stated in a  CNN interview that there would be consequences for Saudi Arabia. The Saudis dismissed the comments by saying they were a “political gambit by the Biden administration to avoid bad news ahead of the U.S. midterm elections.” However, most of the world has been trying to de-dollarize after they saw the Russian sanctions. 

What consequences could the U.S. impose on Saudi Arabia, and what would be the logical response of the Saudis? Since military options don’t make sense, some international sanctions are the most reasonable expectation. The most logical thing is for the Saudis to protect themselves. They protect themselves by strengthening their ties with China from the “consequences” promised by the President of the United States. Two weeks after President Biden's interview, the Saudis called China its most reliable partner.


What is Going on in Europe?


Saudi Arabia Lowers Oil Prices for Asia and Raises Prices for EuropeSaudi Arabia Lowers Oil Prices for Asia and Raises Prices for Europe

The price increase comes at a very inconvenient time for Europe. On December 5, the European Union embargo of Russian oil goes into effect . European energy costs are already astronomical, and many European countries are rationing energy to prevent winter outages. Some countries forbid hot showers. Economists predict Europe will completely deplete its natural gas storage by Spring 2023. Higher energy prices, record high inflation, collapsing currencies due to interest rate inequalities, and energy supply chain disruptions will damage the European economy for years. Europe will go deeper into debt, resulting in multiple business failures. The global supply chain will move away from Europe. When the embargo goes into effect, Europe will feel the price increase like beans in a pressure cooker.


What Does it Mean?


The stated goal of BRICS is to splinter the world into two economies by creating a basket of commodity-backed currencies to compete against the hegemony of the Dollar. If OPEC goes east,  Japan gets destroyed by interest rates, and Europe gets decimated by an energy crisis, who will the United States trade with? What happens to the Dollar if the U.S. has no trading partners?

The price changes appear designed to isolate the United States intentionally. Saudi Arabia didn’t need to do anything to the U.S. oil price because the changes weren’t about increases in production, transportation, or distribution costs. Instead, it appears to be a pre-emptive strike against President Biden’s pledge of consequences to bring about the conditions for the Dollar to collapse without a direct attack against it. By not touching the U.S. price, the U.S. will not respond or talk about what happened. The only way Saudi Arabia can protect itself from sanctions is by destroying the attacking weapon. The weapon is the fiat Dollar. 

Countries use weapons during wars. Wars have causalities. We are a world at war, a currency war with the Dollar on one side and every other currency on the other. There is a 100% chance the causalities will be the savings and purchasing power of millions, possibly billions, of unprepared people worldwide. It is a fight the Dollar can't win. Even if the Dollar wins the battles, it still loses the war. Suppose the Dollar prevails. What good is a strong Dollar if there isn't anyone left to trade with? Who could afford to buy any American export?

The strong Dollar would mean high prices stateside and limited trade with other countries due to their lack of purchasing power. Wages would be unable to keep up with inflation so interest rates would go sky-high. State, local and national governments will face an unmanageable debt burden. The situation will force high taxes, confiscation of property, and taking money from wherever they can find it, which means social security, pensions, and Medicare/Medicaid. 

Will the price changes in the two markets be the domino to bring down the world economy? Probably not. However, the Saudis are soaking the dominoes in oil, so they burn as they fall. Many people will ignore the warnings or procrastinate protecting their families. If there is even a 1% chance the Dollar could lose, wouldn’t you want tangible assets like precious metals for insurance? The world considers precious metals to be currency agnostic, i.e., valuable in every currency. In a currency war, it is best to have options. Fiat currencies have a 100% failure rate. If the Dollar were to survive, it would be the first fiat currency in history to do so. How do you feel about the Dollar’s chances of survival?

Will you act to protect your family?

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About the Author: Ryan Watkins

 

Ryan is proud to be an Army veteran. After honorably serving his country, he studied finance, marketing, and kinesiology and graduated Cum Laude. Sharing a professional, practical, well-rounded investment perspective is his primary objective. Ryan invests in many different assets but admits he likes tangible assets best. His sincere passion is educating people and helping them make the most informed choices.