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Dec 1, 2014

Saudis Use Oil Weapon Against Iran

A lot of pundits are treating the falling price of oil as a Saudi move to try to preserve market share.  I think Saudi Arabia is trying to put the Iranian mullahs out of the nuclear arms business. The House of Saud is so scared of an Iran with nukes, they talk about how much they have in common with Israel during newspaper interviews. I think they have rightfully concluded that the Chicago Machine Prodigy in Chief will not treat the Iranians anywhere near as tough as he does Republicans and that it's up to them or the Israelis to stop an Iranian bomb. The Israelis would have to use nukes to do the job, so the Saudis decided to use the oil weapon. The Iranian government depends on oil revenue for 65% of its budget. The mullahs need an oil price of $100 to $130 a barrel in order to support their internal subsidies for food and gasoline, pay for their extensive and expensive internal security organizations and support Hezbollah in Lebanon, Assad in Syria and Shiite militia groups in Iraq. All those centrifuges processing uranium to make weapons are hugely expensive also.  Iran has minimal foreign exchange reserves. At $50 a barrel for their oil, the Iranian government goes broke in a year or two, maybe less. The Saudis are getting the added benefit of crippling Russia at the same time. Saudis would like to damage Russia because Putin has been selling arms to Assad in Syria and, in addition to arms, has sold a reactor to Iran that can be used to make plutonium for a bomb. Russia gains most of its foreign exchange from oil and natural gas sales. The price of natural gas is under pressure from US fracking and the prospect of increasing US liquid natural gas exports. With the oil price at half of the $100 a barrel Putin needs to stay in business and the ruble down 30-40% against the dollar, things don't look so good for Putin. All the companies his oligarch buddies own have a lot of debt to European banks due in the next two years.  They can't refinance because of the sanctions prompted by Putin's Ukrainian aggression. The oligarchs may be tempted to replace Putin with somebody who would be better for business just like mobsters get rid of guys who attract too much heat from the cops. I think the stress that the lower oil price puts on US producers is a side benefit for the Saudis. The main target is Iran, with a secondary target of Russia.