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Analyst Michael Klare says though Saudi Arabia, Russia, Venezuela and Qatar have agreed to freeze oil production, global production levels will maintain low oil prices for the foreseeable future

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to the Real News Network. I’m Paul Jay. Low oil prices is wreaking havoc on the economies from Venezuela to Nigeria. It’s shaking the economies of Russia, even places like Canada. Well, now, a few of those countries have gotten together. They’re talking about a pact to at least freeze production. Those countries Russia, Venezuela, and of course, Saudi Arabia, to freeze current levels of production, which would at least send a signal, they hope, to the markets, that would raise the price of oil some. There are rumors that out of this pact might even raise the price of oil some. There are rumors that out of this pact might even come cutbacks in production, which is what helped lead to this whole crisis. OPEC had a meeting a while ago, and our guest will be more specific than me, and they decided not to lower production as the Saudis, as everyone theorized, were trying to drive shale business out of business, especially in the United States, in the United States. And perhaps hurt some of their competitors like Russia and Iran. But it’s starting to hurt the Saudis, too, thus the pact. Now joining us to talk about this pact, as well to discuss what all of this might mean for climate change policy is Michael Klare. Michael is a Five College professor of Peace and World Security Studies based at Hampshire College in Amherst, Massachusetts. Klare is the author of many books, including The Race for What’s Left: The Global Scramble for the World’s Last Resources. Thanks for joining us, Michael. MICHAEL KLARE: It’s a pleasure. JAY: So tell us a little bit more about the pact that they’re talking about. But I guess the underlying question here will be if they just freeze, is it really going to make that much difference to oil prices, and then even one step further, if they actually were to cut back production, those three countries in particular, and even if they could get some of the other countries on board. And OPEC, I suppose the big one will be Iran entering the picture, and Iraq. Even if they were to cut back some, would that really change oil prices all that much, given how many places are producing oil these days? So start with the story of the pact, and then let’s talk about how much effect it might have. KLARE: Okay. Well, there are many moving parts here. And like any economic equation there’s a supply part of the equation and a demand side of the equation. And you begin with the supply side of the equation, and there’s just an awful lot of oil sloshing around on the international market. Some of it is coming from traditional suppliers like Russia, Saudi Arabia, Venezuela, Nigeria, Iran and Iraq. But some of it is coming from new suppliers, from shale producers in the United States, tar sands producers in Canada, offshore producers in Brazil. So everybody is pouring oil into the market simultaneously. At the same time, we have a slowdown in demand internationally. We see this especially in China, where there’s economic slowdown underway, and demand has not increased. So whenever you have so much oil sloshing around on the world market, not enough demand, prices are going to fall. All right. Since that process began in June 2014, the Saudis have not cut back on production, which they might have done in the past. Cutting back on production would mean prices could rise. Instead, they’ve increased their production. Why? Because they want to put U.S. shale producers out of business, and other non-OPEC producers like Canada and Brazil. They want to, they want to shut them out of the market and retain their dominant share. So the Saudis have been pouring more oil into the market, and what’s that? What that’s done has been to further lower prices. But now the Saudis are hurting, too. As you said, they are beginning to see budget problems, and the possibility of unrest. So they have now a motive to try to push prices back up a little bit. And apparently they’ve been talking with Russian leaders, with Venezuelan leaders, leaders of other OPEC countries, about not reducing production, but at least not pouring more oil into the market, freezing production at current levels. And that would help stabilize prices a bit. But as long as the United States and other countries, and Iran, do not participate in this, you’re still going to have more oil on the market than there is demand, and so prices are not going to go back to where they were a year or so ago when they were over $100 a barrel. So they may go up, but I don’t think they’re going to go back to where they were. JAY: I mean, is part of what drove the Saudis to allow prices to fall that they were seeing that they were actually losing control, because there were so many–control of the global market, because there are so many oil producers, now. So they wanted to drive the various sources out of, out of production. But that being said, do they actually have that much influence anymore? I mean, let’s say they even cut back production, as I was saying. Would it really make that much difference unless everybody’s in on it, unless all the oil producers agree on a kind of enlarged, global OPEC of some kind? KLARE: Exactly right. The Saudis calculate that if they cut back and if their allies in OPEC like Kuwait and the United Arab Emirates, the UAE, were to cut back, that wouldn’t stop Russia and the United States from continuing to pump as much oil as they possibly could. So the net outcome for them of cutting back would be a smaller market share, and benefits for their competitors. So without, without cooperation of all these players, you don’t have what you were saying, a organized market. So that’s what’s kept the Saudis from acting up until now. However, the Saudis are beginning to hurt. Well, I–one shouldn’t go that far. They have a lot of money stocked away in their sovereign wealth fund. But they’re drawing on that daily. They’ve had to cut back on their spending. They’re cutting back on benefits for their population. And they do have to worry about youth unemployment and the possibility of an Arab Spring kind of upheaval in Saudi Arabia. So my guess is that within the royal family–remember, Saudi Arabia is not a normal country the way we think of countries. There is no government. This is a monarchy and a coterie of princes. And the decisions are made among the royal family and all the princes and deputy princes and crown princes and so on. And they probably are divided on what to do, whether to let prices continue to remain low, and drive the U.S. out of business, or to cut back in production. JAY: You pointed out in your recent article that the American producers are actually just getting more efficient, and they’re actually making money at $33. The smaller producers are going out of business, but the bigger ones probably like that. They help in terms of concentration of ownership and monopolizing the American shale oil. And they’re getting so efficient they can make money at $33. KLARE: Well, a lot of them are losing money. As you say, there are a lot of people out there scavenging, buying up the smaller companies, buying up their leases, so that when prices go back up again they’re going to go right back into production and pour more oil into the market. That’s the problem for the Saudis if they succeed in raising prices in order to balance their budget, what they’re going to face is another deluge of American shale oil. So they’re kind of in a very difficult situation. JAY: So you, in your article you suggested three things that might change your situation and raise the price of oil. This kind of sounds a little counterintuitive to a lot of people, because for consumers, low gas prices sound like a great thing. Why would anyone want higher oil prices? But the global economy is being quite shaken by all of this, and this will come back to bite just about everybody. But let’s go back. You raised three things. Number one, war in the Middle East, for example a Saudi Arabian war that would actually really take out a major piece of production. There’s a lot of rhetoric going on right now, but an unlikely occurrence. You mentioned cutting back. We’ve been discussing. But any significant cutting back doesn’t seem in the cards right now, it’d have to be globally coordinated. And number three, a big spike in demand. But right now if you’re looking at the stock markets, most people are afraid of deeper global recession, not a big spike in demand. So assuming there’s no big changes on any of those three things, we’re looking at low oil prices for quite a while. What is the effect of that on climate change? You would think cheap fossil fuel for years to come, perhaps, is going to really slow down the move to sustainable fuel, sustainable energy. KLARE: Yes, I can understand the concern. But bear in mind that oil is mainly used for transportation fuels. It–most of oil goes for gasoline, for automobiles, diesel, for trucks, jet fuel, diesel for ships and railroads and things like that. So yes, if oil prices remain low, that will discourage the transition to electric cars and hybrids, because they become more expensive. So there’ll be a slowdown there. But electricity, which provides more and more of the world’s energy, net energy supply, that’s not powered by oil. That’s powered by coal and gas, hydropower and nuclear power, and the like. And low oil prices is not going to slow the transition away from coal and, and other fossil fuel supplies of electricity. I think that’s going to proceed pretty rapidly, because solar energy is dropping very quickly. Wind energy is dropping very quickly. So I don’t worry very much, except in the narrow area of electric transportation. JAY: So on the whole, is this good for the global economy or not, what’s happening with oil prices? We know it’s wrecking oil producers terribly. But generally speaking, is this a good thing or a bad thing, what’s going on? KLARE: Well, I think it’s good for consumers in oil-consuming countries like the United States and China and India. That’s going to help automobile sales. So it has some positive effects. But I think the net effects for the world’s economy are kind of–are negative. You have a slowdown in spending by all of these oil-producing countries. We’re talking about Russia, Saudi Arabia, Iran, Iraq, Nigeria, Venezuela. Half a dozen others. All of them are cutting back on their spending. So they’re not contributing much to the world’s economy. You know, but basically the world economy as a whole is slowing down, and low oil prices are not helping to revive the world economic machine. JAY: All right. Thanks very much for joining us, Michael. KLARE: My pleasure. JAY: And thank you for joining us on the Real News Network.


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Michael T. Klare is the Five College Professor of Peace and World Security Studies at Hampshire College in Amherst, Massachusetts. His newest book, The Race for What's Left: The Global Scramble for the World's Last Resources, has just recently been published.  His other books include: Rising Powers, Shrinking Planet: The New Geopolitics of Energy and Blood and Oil: The Dangers and Consequences of America's Growing Dependence on Imported Petroleum. A documentary version of Blood and Oil is available from the Media Education Foundation.