Could inexpensive gas have a down side for the United States?

Suppose the decrease in gas prices, which is making virtually everyone happy at the pump has a potential down side?

Who in America is not excited about cheap oil? However, just as the U.S. was set to obtain huge profits from its shale boom the Saudi Arabian led OPEC decided to flood the market with massive supply.

So who benefits from the price drop? As of now, it seems the only benefit is for the consumer. So why bother flooding the market? Saudi Arabia is taking an income cut on its primary source of revenue at a time when it's projecting a $39 billion deficit for 2015.

One theory is that Saudi Arabia and also the U.S. are conspiring to weaken the economies of both Russia and Iran. The motives make sense. With respect to Iran, Saudi Sunni and Iranian Shi'ite regimes have long hated each other, while America is perpetually concerned about Iranian nuclear unpredictability. On the Russian front, Saudis and Russians have been at each others throats over Saudi funding of Islamic terrorism in Russia's North Caucasus region and over Russia's defense of Assad in the interests of maintaining Russian oil interests and of curtailing Islamic terrorism. Meanwhile, the U.S. currently seems intent on squeezing Russia economically.

But as much sense as a U.S.-Saudi Arabia conspiracy theory might make, there are some significant problems with it. The U.S. chose Russia as a partner over Saudi Arabia and Qatar when faced with that choice in Syria last year. There are no shared ideological interests between the U.S. and Saudi Arabia ó aside from mutual cooperation in combating the Islamic State, which both countries had a role in creating. The Saudis couldn't possibly manage to weaken the Russian economy to the point that Putin would abandon Assad and bail on Russia's associated economic interests in the region nor would America want that at a time when Assad's forces are now fighting against a common Islamic State enemy. Moreover, Russian and Saudi ministers met in Moscow in November to discuss cooperating on oil to better manage their respective economic interests. That last fact alone flies in the face of any Saudi-U.S oil price conspiracy theory.

An arguably more plausible theory is that if any nation is colluding with Saudi Arabia, it's China, the top global net importer of petroleum products and the country that's most benefiting from the bargain prices at the pump these days. China is also the only player that couldn't care less about oil revenues. Sitting in 49th place in the world for crude exports, China relies on manufacturing for its revenues. Unlike everyone else in this game, when China lays an oil pipeline in a foreign country, it's not for profit it's just a massive straw delivering the milkshake to the insatiable masses back home.

During the China-Arab Cooperation Forum in Beijing over the summer, Chinese Foreign Minister Wang Yi wrote that, "China and Arab states are working together to build the economic belt and the maritime silk road to revive the modern-day silk road. This will open a door to new opportunities for China-Arab relations."

Saudi Arabia is already China's top oil supplier, and China doesn't care about its partners' ideological preferences. It's a match made in heaven.

If the Saudis and Chinese are wheeling and dealing on oil prices for rewards to be specified later, then Russia, North America and Europe will eventually all end up sobbing into their alcoholic beverages of preference as their liquid gold drops in value.

And while the customers may enjoy the price break now, government and industry oil-revenue loss will come back to bite us in the form of job losses and fiscal cutbacks requiring even more U.S. debt to be bought up by its primary holder: China.

For now we all get to enjoy the cheap gas.

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By Bryan Gray | | fracking, Gas Prices, Natural Gas, Petroleum | 0 comments
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