Whose economy would suffer most if embargo on KSA oil?

[Anonymous1 0]

I’m trying to make sense of this KSA situation as I find it hard to believe (but not completely implausible) that people could be so sloppy. For folks better versed in geopolitics and economics than myself, if the US did put sanctions on Saudi and the retaliated by embargoing their oil, both short-term and long-term how would each of the following economies be affected?

1. USA

2. Russia

3. China

4. KSA

Thanks! 

Edited October 21, 2018 by Anonymous1

[Kate Turlington + 44]

Both sides like to talk about playing this oil game. Plenty of notions that KSA could restrict oil supply, which arise because Trump has been lobbying them to produce more to offset loss of oil on the market from Iran. It seems silly to threaten to embargo the oil of country that is letting others leak the notion of restricting oil supply. It's also one thing to sanction Iran, and quite another to sanction Saudi Arabia, and quite another still to sanction both simultaneously. The KSA certainly would be harmed in such a situation, though it has immense borrowing power. From the U.S. position, actually embargoing oil is about as likely as the Crown Prince giving up his palace(s) to live in a trailer park. Sanctions would take a different form, a la Russian sanctions under the Magnitsky Act. Overall, I believe China imports the most (total Saudi exports, not just crude) from Saudi Arabia. You also have to consider that China would not likely bow to any such US-led sanctions. The biggest beneficiary would be Russia, which is presently making rather solid gains in terms of gaining influence in the Middle East.  

 

[mthebold + 943]

On 10/22/2018 at 12:16 PM, Kate Turlington said:

Both sides like to talk about playing this oil game. Plenty of notions that KSA could restrict oil supply, which arise because Trump has been lobbying them to produce more to offset loss of oil on the market from Iran. It seems silly to threaten to embargo the oil of country that is letting others leak the notion of restricting oil supply. It's also one thing to sanction Iran, and quite another to sanction Saudi Arabia, and quite another still to sanction both simultaneously. The KSA certainly would be harmed in such a situation, though it has immense borrowing power. From the U.S. position, actually embargoing oil is about as likely as the Crown Prince giving up his palace(s) to live in a trailer park. Sanctions would take a different form, a la Russian sanctions under the Magnitsky Act. Overall, I believe China imports the most (total Saudi exports, not just crude) from Saudi Arabia. You also have to consider that China would not likely bow to any such US-led sanctions. The biggest beneficiary would be Russia, which is presently making rather solid gains in terms of gaining influence in the Middle East.   

 

I'd argue that, long term, the world could use a combination of unconventional sources, efficiency, and waste/gas/coal-to-liquids technology to replace OPEC.  Driving up prices only accelerates that process.  The US & Russia will both be oil exporters, whereas China will be an importer for a while.  If they can't scale coal-to-liquids to the multi-MMbpd level, they'll import indefinitely. 

Suppose the US sanctions Iran and SA.  Oil prices will rise.  Some - but not all - of their supply will be driven from the market. 

Effect on the US: higher prices, increased exports, and therefore increased global hard power = good for the US. Since the world doesn't need OPEC long-term, losing "influence" in the Middle East is a moot point.  We don't need to influence that which has no value.  On the contrary, we may actively destroy that which competes with us.  Or we could stop spending $80-90 billion policing it.  The US wins no matter what. 

Effect on Russia: higher prices, increased exports, and therefore increased global hard power = good for Russia. 

Effect on SA:  either SA is forced to rely on China - which is demonstrably bad for SA, considering China's methods - or China chooses to source elsewhere.  China lacks the military projection to police the Middle East - and probably aren't interested in the cost anyway - so I'd bet they wean themselves off Mid East oil to the extent possible.  It will take a while, but it can happen.  SA would be forced to compensate for all of this by offering better prices & terms.  SA also loses US protection, as we no longer need them.  This forces them to dump billions into self-defense.  Except for a short-term price boost - which they may not enjoy, due to the need to discount - SA loses. 

Effect on China: China suffers higher oil prices - which they're poorly positioned to absorb.  It also suffers increased dependence on the US and Russia, both of which are adversaries.  In time, it may sufficiently wean itself off transportation fuel and boost CTL to become energy independent, but it's not there yet.  China may gain increased influence in the Middle East, but only at significant military cost.  I'd hardly call that a benefit.  China loses.