Gas Prices And Hostile Royals
Bad news. More of it.
Consumer inflation expectations in the key University of Michigan survey moved back up in early October, according to preliminary results released on Friday.
One-year expectations rose to 5.1% from 4.7% in September, while five-year expectations were back out to 2.9% after receding to the lowest since April of 2021 last month (figure below). Gains were reported across age, income and education, the survey said.
Make no mistake, this is notable. The Fed is sensitive to
Earth to Klaatu, please send Gort…
+1
I can’t believe I’m saying this but it’s beginning to look like our current POTUS is seeking to increase isolation for the US just like his predecessor. These days it seems that managers of all stripes seem to think effective management requires a willingness to be a ba…rd, as well as being short-sighted and a bit dim. Not the hallmark of a “Christain” nation.
Perhaps, but it seems to me we are just watching globalism unravel. The actors are painted into corners of self interest
What does the US relationship with Saudi have to do with isolationism? The US has to guarantee a country’s security and periodically send troops into combat, or we’re “isolated” from that country?
We can not get to nuclear (SMRs) fast enough. Fracking will be necessary to bridge the gap.
Almost all of Saudi’s military aircraft (fixed wing and helicopters), ordnance, missile defense, and ordnance are US-made (the rest are mostly UK) and are maintained and supported by US (and UK) contractors and spares. A modern jet fighter requires something like 10-20 maintenance hours per flight hour. The US also provides critical operational support to Saudi, including aerial refueling, targeting, and intelligence. From what I’ve read, the Saudi Air Force cannot operate, for long, without ongoing US (and UK) support.
The bulk of Saudi’s armor and artillery is also from the US, but I don’t know how dependent that is on ongoing US support.
Saudi can’t switch to Russia as its main weapons supplier, because Russia can’t build its most sophisticated weapons and needs to replace its own losses. Anyway, assessment of Russia weapons have probably dimmed a bit. Conceivably Saudi could switch to China, who would probably like to develop a defense export business. This would be quite a gamble by Saudi, as Chinese weapons are unproven. It also wouldn’t solve their problem, as China cannot provide the same security guarantees that the US does (not going to send 100,000 PLA to fight Desert Storm Xi), and whether China would even stand by Saudi in a fight with, say, Iran is uncertain.
The question would be whether this is a risk that MBS (or his father) want to take, to boost oil by $10/bbl for a while?
The Saudis are not our friends. The U.S.-Saudi relationship has always been a marriage of convenience. And @jyl is correct: the U.S. has the leverage here. If Prince Bonesaw wants to take a turn in Putin’s sandbox, good luck to him. Q: What do you call an air force that can’t maintain an offensive or defensive capability? A: a seriously wasting asset.
I’ve been reading about energy lately and it seems fracking is a terribly expensive way to produce oil. There’s a lot of debt in fracking that may never be repaid. Plus we are past the peak of oil produced this way. https://economicsfromthetopdown.com/2020/11/16/peak-oil-never-went-away/
Also, asking seriously, could it be that Saudi Arabia is slowing production in order to not run out of oil too soon, and dare not say so?
It takes oil to produce solar panels, wind turbines and nuclear power plants. From what I’ve read we are using up fossil fuel energy before we have a replacement.
That’s part of it, I’m sure, but Saudi is being unusually aggressive here. In the past, $70-80 was a perfectly acceptable price for Saudi as $100 risked due to demand destruction. Trying to force price to $100 is “not your grandfather’s Saudi”, as it were. I know, inflation, but oil is sold in USD.
The US first tried to get additional barrels of oil from Venezuela, an ally of Putin, to mitigate those lost Russian barrels.
US govt. also courted the US oil industry to not sit on non-producing acres available for drilling and to start drilling or face possible fines. Not sure but I think that did not go well either.
The US govt. then moves to release 1 million barrels per day from SPR up to about 180 million barrels which should be ending late this year or early next year. But this only represents about 5% of US consumption, probably not enough to really impact US inflation.
So, I do not see how the US is really in a position of strength here.
The SPR will need to be replenished and in a tight oil market.
The US producers are not interested in increasing supply, in producing extra barrels at much higher costs and getting paid lower $ per barrel in a tight oil market. (Sound familiar?)
The US cannot take the risk of not providing adequate security or support to the Saudis to protect their installations (and the US petro dollar).
The US could sanction Saudi oil, seize their reserves, actively subvert the riyal peg, cancel all security guarantees and the monarchy would collapse.
They’re a client state. At the end of the day, they’ll either do what the US says, or they’ll lose the strategic partnership. The idea that the US somehow has more to lose from that than the Saudis is a joke. They can try to sell their oil to the Chinese in yuan, but then they’re in CNY in size. How do you imagine that’s going to work? The yuan isn’t a freely traded currency. I’ve been over this dozens of times. There’s no alternative for them economically, and militarily, who’s going to arm them? The Chinese? Against Iran? No. Definitely not.