Final clash as the age of oil ends


In the early 2000s, one of the 10 topics that was discussed in international economics was the double deficit of the U.S. arising from budget and current accounts, while another was the dependency on oil and the question of whether the supply of oil would be sufficient for the world's consumption in the coming future. The budget deficit of the U.S. that has reached $1.5 trillion by the end President George W. Bush's term from a surplus of $250 billion under President Bill Clinton and that was brought down under $500 billion by the end of 2017, is expected to surpass $800 billion by 2020, $1 trillion by 2022, and reach $1.5 trillion by 2024. For this reason, the U.S. Treasury repeatedly filled the reached ceiling and additional borrowing was provided. The abandonment of China, Japan, South Korea and the EU countries to keep U.S bonds in their reserves translates as a severe shock for the U.S economy. That is why, although later falsified, the news that came out last week that China would no longer buy U.S. bonds turned the market upside down for half a day.

The U.S.'s current account deficit, which was $100 billion in the early 1990s and $200 billion in late 1990s, was $800 billion in 2006, and today, the U.S. is trying to keep it under $500 billion. Exporting energy is the most important tool for the U.S. to keep the current account deficit under control. That is why the ban imposed on oil exports from the U.S. to the world during President Gerald Ford's administration in 1975 was lifted 40 years later, and the U.S. increased its oil production in 2015 to 3 million barrels, covering both the countries that lost a significant or some portion of their oil production due to civil wars, sanctions and other events. Libya's production dropped 1.5 million barrels, Iran 800,000,and other countries 700,000 barrels. By accelerating oil exports, the U.S. wants to capture a significant share of the $1.7 trillion oil market. While OPEC countries, with the exception of Saudi Arabia, and all other producers except Russia experienced 7 points of market loss between 2010 and 2015, the U.S. increased its market share by 5 points.

With oil prices above $60, by increasing oil rig towers, the U.S. is planning to surpass Saudi Arabia by producing a daily average of 10.8 million barrels in 2019, and with a daily production of 11 million barrels in November 2019. At this point, Saudi Aramco, which produces 10.5 million barrels of oil daily, was transformed into a joint stock company as of Jan. 1 for its public offering planned for 2018. To raise funds for the 2030 Vision project of Crown Prince Mohammed bin Salman, there was a plan to sell 5 percent of Aramco, whose value is expected to reach $2 trillion. We have previously seen the things that happened to princes who have opposed to this project. The public offering was expected to take place in Shanghai Stock Exchange, but after President Donald Trump's visit, the Saudis turned to considering the New York, London and Hong Kong Stock Exchanges. Add to this the fact that the Trump administration is preparing a 5-year plan for oil and natural gas drilling and production in the Pacific and Atlantic as well as coasts along the Mexican Gulf. As the age of oil ends, we will be discussing a lot of conflicts that will escalate between producing countries.

Oil prices will again alter the balance

In the second cold war era, just like the mythological four-faced creatures, political relations of countries that shape global politics have turned into matryoshka dolls.

It is very difficult to understand which of the faces is the real one for U.S., Russia and China among the pieces nesting inside each other. This is why primarily for the Syria issue, we are now going through a process where bilateral relations constantly pass through trust and sincerity tests and we try to understand which diplomatic relation Russia is pursuing with Turkey.

At this point, the policy adapted under President Barack Obama for both Russia and the Gulf were very different, and linked to that, there was an attempt to intimidate both Russia and the Gulf with oil prices. The price of one barrel of crude oil, which tested $149 in 2008, and was close to $130 in 2012, reached lower than $30 with the collapse in 2015 and 2016, and was later approximately $40 with the rioting of U.S. oil and energy companies. Russia and Gulf countries entered into an economically very challenging period. Russia lost $280 billion of reserves.

Today, though, with Trump, the U.S. is now in a new game, this time toward China and the Asia-Pacific, and the position of Russia and the Gulf has changed. This brought up new troublesome days for Iran, which meets China's energy demand. The nuclear agreement was, however, reached with Iran during the Obama era. Even though $60 is expected for average price for oil, it moved toward $70 with the Iran tension. In this new setup, a new tough and cruel game to escalate the inflationary pressure and the cost of energy exports can be seen for countries that rely on oil export. This is why it would be beneficial for countries dependent on energy exports to plan strategically for 2018.

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