Saudi Arabia using the 'oil weapon option' could cause prices to soar to $150 - Finance

Saudi Arabia using the ‘oil weapon option’ could cause prices to soar to $150 – Finance

  • Evidence is increasing that Saudi Arabia was behind the disappearance of Jamal Hashoggi, a US resident who was a critic of the crown prince.
  • After the US threatened with sanctions against Saudi Arabia, an oil-rich country seemed to hint at its ability to hit the energy market.
  • Analysts see the 1973 style embargo as unlikely, but warned that oil prices could suffer from three digits if tensions increase.

Saudi Arabia retreated from the overwhelming evidence that this was the disappearance of Washington Post journalist Jamal Hashoggi, stressing his "vital role in the global economy."

And although a country rich in oil is unlikely to follow what many see as the hidden threat of pressure on the energy market if the West imposes sanctions on Riyadh, analysts do not assert this scenario.

"We believe that the leadership of Saudi Arabia will be extremely reluctant to use the oil weapon option, since its reputation as a stable and reliable oil central banker in the world will be seriously undermined," RBC analysts write in a research note. "It is probably more likely that the decision of Saudi Arabia to slow down any trophies inspired to increase productivity, as the sanctions against Iran expire."

Saudi Arabia, the world's largest oil exporter, intends to play an increasingly important role in supporting the global supply when US sanctions against Iran take effect next month. At the request of the Trump administration, Riyadh agreed to increase the production of a “measurable” amount at the beginning of this year.

“The Kingdom is already looking to move closer to the upper limits of what it can easily inflict, and now it can put on any short-term production restrictions as a deliberate policy choice,” analysts write.

Although analysts doubt that Riyadh will reach an energy embargo, the government used oil resources to exert political pressure earlier. During the 1970s, a coalition led by Saudi Arabia cut oil exports to the United States in protest against Washington’s support for Washington in the Yom Kippur war.

"We can not completely exclude that the leadership will vacuum the game in 1973, if bilateral relations with Washington will deteriorate sharply from here," added RBC.

Saudi Arabia and other OPEC members a quarter of all oil production this year, triggering an energy crisis all over the world. Prices almost quadrupled to about $ 12 a barrel in 1974 from $ 3 a barrel two years ago. But after failing to achieve the main political goals, the embargo and the reduction of production were lifted.

Caroline Bane, chief commodity economist at Capital Economics, agrees that Riyadh will not want to take this route this time. But she said that by the end of the year, the cost of energy could almost double, if that happens, brant already at four-year highs, above $ 81 a barrel, and release breakdowns among the key producers of OPEC.

“It does not look too unbelievable, given that the reduction in Saudi Arabia will occur during a period of production cuts in Venezuela and Iran,” said Bane. "The price of oil … has already proven its sensitivity to changes in supply this year, an increase of almost 20% since August, fearing a sharp drop in Iran’s production as a result of the reintroduction of US sanctions."

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