Suchergebnisse

The oil-price collapse that started in June 2014 was not just a correction typical of commodity markets. It will be seen retrospectively as the inauguration of a new era. The oil industry has gone through a constant process of change since the oil-price shocks of the 1970s, but one key, structural feature has endured. The sovereign owners of the cheapest resources on earth - notably Saudi Arabia and other Gulf producers - have exploited them much less intensively than would have been the case under a competitive market structure. Because of the relative unresponsiveness of both supply and demand for oil to changes in price, the Saudi-led oil cartel of low-cost Gulf producers has been able to withhold cheap oil from the market, shifting marginal supply to more expensive oil fields. Hence, for decades, oil has been sold for more than it would have cost in a competitive industry. This strategy has generated huge economic rents for the industry's key players, including Gulf sovereigns and publicly traded oil companies. Today, however, this structure is being eroded, and may even be collapsing before our eyes. The emergence of the North American shale-oil industry as a large and price-responsive source of supply is a key component of this change. However, it is the strategic response of Saudi Arabia, and by extension other low-cost resource owners, to the shale-oil revolution that has triggered the emergence of a new regime. Countries such as Saudi Arabia and the United Arab Emirates (UAE) are investing to produce more oil in an attempt to displace higher-cost sources of supply - including US shale. This strategy is supported by growing fears among Gulf producers that long-term demand - and therefore the value of their reserves - may be under threat from environmental regulations and technological advances. Reflecting the latter risk, Saudi Arabia is embarking on a radical economic overhaul. Moving away from being a rentier society will involve painful change, and will only succeed if Saudis can be convinced that oil prices cannot durably move back up. Lower prices were initially imposed on Saudi Arabia by the shale revolution; today, the Kingdom's leaders need sustainably low prices to succeed in weaning the country off its oilexport dependence. Shale oil appears to be bringing profound, lasting change to the oil industry. What it will not do, however, is reduce the importance of the Middle East. Under the new regime, the oil market's reliance on the Gulf will increase, diversity of supply will shrink, US oil imports will rise once again and Middle Eastern geopolitics will present a serious risk to global oil security. (Survival / SWP)

Asia's reliance on international, seaborne energy trade is conducive to strategic cooperation. Whether this will outweigh strategic competition is far from certain. (Survival / SWP)