Battle of oil titans

The fight for global oil markets is now entering its acute phase, actively influencing the world’s political map. The United States seizing long-time oil leadership, the relentless squeezing of the Russian black gold from the world markets, as well as hotter competition on the part of Saudi Arabia, Iraq and Iran give rise to a great geopolitical storm.

The cost of oil set by Middle East exporters and the United States is now fully capable to withstand the price of $20 a barrel. The other competitors – many OPEC states, Central Asian governments, and most importantly, Russia will find their oil industries completely unprofitable. For example, it is no secret that the annual $1 dollar decline in oil prices steals $2 billion from the Russian budget each year. It seems that Putin will soon run out of money to provide fuel to his troops deployed in Syria, as well as for his cynical humanitarian convoys sent to Ukrainian Donbas, which has been destroyed by his soldiers and mercenaries.

In addition, oil is gradually becoming obsolete as “blood of the global economy”. The advanced nations of are switching to alternative energy, increasing its share in its energy balance. At the same time, the most important criterion for justifying the high cost of renewable energy is security and almost complete independence from external processes outside the given country. After all, when most of the country’s energy is generated by wind turbines (such as in Denmark), no energy geopolitics, "gas wars" or other interstate energy conflicts can be frightening. It's expensive, but it’s worth it.

For those who are not ready to switch to alternative energy, the United States prepared a new technology of extraction of hydrocarbons, essentially reducing the price and simplifying the process. For example, a special surprise for adepts of shale revolution has become the technology of the plasma impulse, which is  already actively replacing traditional fracturing. It does not require large amounts of water, it’s more environmentally safe, at the same time significantly increasing performance. Its cost price is now slightly above $20 per barrel. This is a new word in the ongoing "shale revolution."

For the lovers of some exotic methods of production, the US-based Manta Biofuel (Maryland) invested in the development of bio fuel extraction technology from algae via hydrothermal liquefaction involving solar-powered equioment. This method also provides for water purification.

Now the world's oil supply exceeds demand by 1 million barrels per day. Iran has said it was ready to raise the bar, on their own, by another 0.5 million barrels per day, as soon as possible.

How do Iraq and Saudi Arabia respond to Iran’s cunning plan? They reply with tough dumping and aggressive fight for markets. All major exporters of "black gold" understand that the market starts to narrow (the main reason is a new energy revolution and the global economic downturn). Therefore, the only winning strategy today is "strike while the iron is hot." That is, sell more oil at current prices before they fall further and there is less demand.

As a result, Saudi Arabia began a massive campaign of conquering the European oil market, starting with Eastern Europe (special emphasis on maximum pushing Russia out of the market - a sort of a response to Russia’s intervention in Syria, but not only that).

A distinctive feature of Iraq's oil policy in this situation has become not only the active production growth, but also dumping in oil sales. For example, according to energy experts, Iraqi’s Basra Heavy crude oil ($33-34 dollars per barrel) is actually being sold at a much lower rates than the fixed ones, often falling below $30 a barrel.

Separately, it is worth noting that the global redistribution of the oil markets and the collapse of hydrocarbon prices is a harsh tests for the post-Soviet states such as Azerbaijan and Kazakhstan. It will be interesting to see how national leaders and local elites will respond to the challenges of modernization due to the slow decomposition of raw models of national economies.

It’s no surprise that on the background of the oil apocalypse looming on the Russian Federation with the assistance of the United States, Saudi Arabia, Iraq and Iran, opinions are emerging in the information space about a possible military strike of Putin's Russia on Saudi Arabia and Qatar (Moscow’s main gas competitor). In fact, what else can be Putin’s response to this challenge? Only force, it seems. For example, political expert Andrei Illarionov suggested in his blog this kind of military operation by the Kremlin. He believes that the recent events show that Moscow is preparing a massive attack on energy facilities in Saudi Arabia and Qatar. It should be added that, if something like this happens, hypothetically, it would be the shortest way for Putin and his regime to destroy today’s Russia and draw it into the bloody chaos of the internal opposition. Besides, the Saudis have not yet mobilized their main forces against Russia.

Ukraine is just one of many battlegrounds in this struggle. In order to survive, the country needs maximum internal consolidation and willingness to modernize quickly and efficiently the state, the economy and the governance. Unfortunately, these challenges have not yet seen the adequate response.

Roman Rukomeda is a political expert