Hacker News Reader

Comment by btilly | Hacker News Reader

Here is my brother's pet theory on why the price of oil fell.

Saudi Arabia wanted the USA to intervene against ISIS. The USA wanted the price of oil the fall to hamper Russia and Venezuela. Russia because they are getting aggressive and doing things in the Ukraine and Syria that we don't like. Venezuela because they are the center of anti-Americanism in South and Central America.

Which is exactly what happened. We bombed ISIS. The price of oil fell. Russia and Venezuela have been hurting.

There will likely never be proof whether this theory is correct. But leadership in both Venezuela and Russia have come out with the same theory. Articles like http://www.nytimes.com/2015/02/04/world/middleeast/saudi-ara... make it clear that the USA and Saudi Arabia are playing the geopolitical angle with Russia. And our current efforts to normalize relations with Cuba sure looks to me like an attempt to strip Venezuela's closest ally away from them.

View on HN

No. The price has fallen as demand has waned, or at least did not match expectations as global GDP expectations fell.

Normally Saudi would reduce supply to keep the price up. But they've taken the opportunity to attack their biggest threat: US Shale oil. By keeping production up, the price has dropped and that is pushing shale oil extractors out of business: these guys need ~$60/barrel to be profitable. It's having a real impact - just look at the US High Yield sector. Firms are going bust, credit spreads are blowing wider and investment in the sector is dropping.

So when enough investment in Shale is killed off, the Saudis will reduce supply... jacking up the price and happy days for them.

It's great to have such "allies", isn't it??

This is a good analysis. However, it is a little odd that everyone mentions the Saudi failure to reduce supply as a factor in lower prices, but no one mentions the increased supply from US shale oil. Although up slightly, conventionals are relatively flat. Most of the global supply increase has come from nonconventionals and US shale oil's role is significant.

Interestingly, most US shale oil investments seem to properly protected against price drops via commodities contracts - at least through this year - so the near term pain will be in the financial industry.

US production has gone up substantially:

http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=50&p...

I tend to think that there is some connection between the lack of production cuts from Saudi Arabia and ISIS/Russia politics, but it can also be the case that they can't afford to cut roughly 1/3 of their production.

Why would Saudi Arabia be against ISIS, except as a rival? Wahhabism originates in Saudi Arabia.

http://www.independent.co.uk/voices/comment/iraq-crisis-how-...

Because the House of Saud (ie the royal family) are relatively secular people whose main interest is in maintaining power in a country of extremists. They are willing to fund their own radicals to keep from having a revolution. But at the same time they are scared that those same radicals will some day decide the royal family is too corrupt to lead a pure Islamic state.

ISIS represents exactly the kind of movement that they are afraid would lead to this result.

ISIS is fundamentally different from Al Qaeda and the sort of Wahhibist terrorism that the Saudis have historically been involved in. It is a direct threat to the Saudi government, and every other Arab government.

I'll point out that the Saudis have actively bombed ISIS. They're militarily involved in this war. It's a huge, huge deal for them.

ISIS was actually partially funded from Saudi Arabia.

It was partially funded by the US too, until everyone realized what a monster it was.

Individuals in Saudia Arabia who are against the monarchy. Not the Saudi government per se. Although the lines are certainly blurred when you consider that both the US and Saudis funded 'moderate' rebels in Syria, many of whom weren't so moderate and joined ISIS. And then of course Qatar and Turkey have also funded and assisted various rebel groups in Syria, many of whom are now ISIS as well.

ISIS has tremendous popular support. A lot of ordinary people throughout the Arab world applaud their return to a pre-westernized Arab society. They actively provoke Arab governments, because it can lead to revolution in those other countries.

So yeah, lots of wealthy individuals in Saudi Arabia have funded them. But the government itself is terrified.

> ISIS is fundamentally different from Al Qaeda

ISIS's old name was 'Al Qaeda in Iraq'.

> ISIS's old name was 'Al Qaeda in Iraq'.

The Islamic State in Iraq and the Levant (ISIL) -- sometimes called the Islamic State in Iraq and Syria (ISIS) -- has had only one previous name, the Islamic State in Iraq (ISI). Arguably, even that's not really a previous name but just one of two groups that formed ISIL, though the other was itself an offshoot of ISI, so the point is debatable either way.

Among the organizations that came together to form ISI was the group formerly known as "al-Qaeda in Iraq", but even for that group, the name change in 2004 to "al-Qaeda in Iraq", was an opportunistic rebranding reflecting the currency of the "al-Qaeda" brand (and, arguably, also the simultaneous weakness of the actual substantive "al-Qaeda" organization, which made it interested in having in-name-only affiliates) in radical Islamic circles in 2004; it wasn't the original name of the group, which had been around for several years before affiliating itself with the al-Qaeda brand.

So the statement that ISIL -- or ISIS, if you prefer -- is "fundamentally different than al-Qaeda" is fairly accurate even if the main component of ISIL is a group that was for a few years affiliated loosely with al-Qaeda.

> Why would Saudi Arabia be against ISIS, except as a rival?

"As a rival" is the main reason any government is opposed to any other government or would-be government, so the question is silly from the outset.

I'm not seeing a connection to ISIS and the price of oil.

ISIS (at least last year, don't know right now) funded their operations in large part with stolen oil. When the price of oil halved, that hurt their operations significantly.

The weaponization of oil, finance, commerce, internet, democracy and the list goes on and on for the US.

Reply on news.ycombinator.com