{"id":6674259,"date":"2020-03-10T10:13:33","date_gmt":"2020-03-10T10:13:33","guid":{"rendered":"http:\/\/cfe.econ.jhu.edu\/?p=6674259"},"modified":"2021-03-05T16:54:47","modified_gmt":"2021-03-05T16:54:47","slug":"saudis-russians-chineseand-greens-four-dimensional-chess-time-corona","status":"publish","type":"post","link":"https:\/\/krieger.jhu.edu\/financial-economics\/2020\/03\/10\/saudis-russians-chineseand-greens-four-dimensional-chess-time-corona\/","title":{"rendered":"The Saudis, the Russians, the Chinese\u2026and the Greens, \tFour Dimensional Chess in the Time of Corona"},"content":{"rendered":"
Crude oil prices plunged on Monday, as Saudi Arabia has announced that they will ramp up production to punish recalcitrant OPEC members, including and especially Russia. Rising supply alongside a virus driven swoon for global demand is a prescription for collapse, and that is what is unfolding. We would argue, however, that the Saudi move is not a short-run tactic, but instead, a part of their new found long-term strategy. As we see it, one should expect a sustained rise for Saudi production, reflecting newfound understanding of climate change. Russian oil dependent oligarchs, unnerved pols in China and developed world heads of state fearful of climate change will all need to contemplate the Saudi gambit and decide upon their own responses. To be sure, the coronavirus, for the moment, owns the airwaves. From our vantage point, the current pyrotechnics in the oil market reflect epochal developments. <\/p>\n
We wrote, a bit more than two years ago, that Saudi Arabia had We posited that the Saudi Aramco initial public offering (IPO) was a \u2018tell\u2019\u2014signaling Saudi\u2019s newfound desperate desire to sell oil at current prices. We offered that a key Saudi tactic to preserve interest in the deal would involve cutting production, to keep spot market oil prices artificially inflated. On the other side of this sale of oil reserves to chumps scheme, the Saudis would soon reverse course and ramp up production. This sharp reversal would reflect Saudi willingness to accept a sharply lower oil price, in order to dramatically increase market share and ensure that, at least at some price, they would sell most of their oil. <\/p>\n
\nfinally gotten the joke about their long-term prospects for selling oil<\/a>. Our thesis was simple. The Saudis recognized that climate change was real, that fossil fuel use in the coming decades would shrink dramatically, and that they needed to engineer a two-part strategy to maximally monetize their oil holdings. Part one involved duping investors into buying a share of Saudi oil reserves. The centerpiece of part two would be a big ramp up of production. <\/p>\n