Saudi Oil Minister Ali Naimi really got the world’s attention in an interview he gave to the energy journal Middle East Economic Survey (MEES). We told you earlier that Naimi said the Saudis don’t care how low the price of oil goes: “Whether it goes down to $US20, $US40, $US50, $US60, it is irrelevant.”
What’s interesting though is Naimi’s rationale for not caring. Basically, he told MEES, the Saudis can afford not to care about the low price of oil.
The Russians, by contrast, cannot afford it because they are inefficient producers who can’t stop pumping even if they wanted to. Low prices are decimating the Russian economy because the country is dependent on oil. That’s driving down the value of the ruble, and making it impossible for Russia to pay its debts. Already, Russia’s central bank has had to bail out one of its private banks. A full scale Russian collapse is increasingly likely. Russia can’t reduce the amount of oil it pumps (which might raise prices) because its oil fields and technology aren’t as good as the Saudis’.
The reason Saudi Arabia isn’t collapsing like Russia is because the Saudis have been careful and efficient producers, who have stockpiled huge amounts of cash in case this day would come, Naimi reckons.
Everyone is asking whether the Saudis should pump less oil and let the price come up, rescuing nations like Russia who need the price of oil to be $US105 a barrel. But why should the Saudis be punished for Russia’s uselessness? Naimi told MEES — via The Financial Times — that Russia doesn’t “deserve market share”:
It is also a defence of high efficiency producing countries, not only of market share. We want to tell the world that high efficiency producing countries are the ones that deserve market share. That is the operative principle in all capitalist countries.
You know Naimi is talking about Russia specifically because of the geography he calls out by name:
… The problem with old fields around the world is that they need continuous investment in new wells, and they cannot shut old wells, because if they do, they will not come back up. So they are wary in that respect, particularly in West Siberia, where they have been producing for a long time and the wells there are declining.
… I want to make one thing clear. It is unfair of you to ask Opec to cut. We are the smallest producer. We produce less than 40% of global output. We are the most efficient producer. It is unbelievable after the analysis we carried out for us to cut.