hello and welcome to cross talk were all things considered i'm peter lavelle with the coronavirus now officially declared a pandemic the world faces the additional burden of an oil market collapse this comes at a time when demand for crude is already low some are calling this the ultimate perfect storm how this all ends is anyone's guess.

crude carnage i'm joined by my guest was me in beirut he's a professor of economics and international affairs in irvine we have pai and he is an independent economic and geo political analyst as well as a former commodities trader and in toronto we cross alexandre bruno he is an analyst at gulf state analytics sorry gentlemen cross-like rules in effect that means you can jump in anytime you want and i always appreciate pilot may go to you 1st in irvine because you got up early as for this program here all right it all happened quite quickly and a lot of analysts weren't too surprised by the deal that the russians and the saudis had collapsed. the russians didn't go along with what the saudis wanted to do and the saudis reacted and now we have carnage on the oil markets here what is saudi arabia's gambit here because you know in the if you look at its budgetary constraints it can afford to have low oil for

a very long time and we throw in the coronavirus that is also hurting crude demand all across the world what's the what's the gambit go ahead. well thank you yeah the timing the gambit of the gambit as well as a separate thing all this turmoil and black swans concurrently happening around the world really kind of begs certain geo political questions in my opinion you have coronavirus more or less announced really kind of command saying on new year's eve and then the rollout is fairly rapid and. in a sense the attention being kind of collapsing of as you said already low energy demand but as an energy demand especially within china's collapsing then you have the announcement of the pandemic and the timing then of opec really saudi arabia and to a certain extent now u.a.e. . you know just insisting on the pullback which would in turn affect the

desired medium term desired from russia to capture more of the global market share within the energy space and at some point there was a budding of hads russia i sensed saw through certain coordination issues you had unofficial accusations of coronavirus having been triggered out in the west from russia as well as from iran and russia did you know they do their math they do their homework and they sense that they can write out a price war much better than the very over leveraged you know $50000000000.00. budget constraint to saudi arabia that needs $83.00 a barrel of oil in order to balance its budgets as well as fund its longer term visions of getting off of oil and expanding its economy under the vision of mohamed bin solomon so it's really people have to look at this as

a sense of it these are not just necessarily coincidences in my point of view because the ruble was strengthening last year russia. has been on a de dollarization platform in order to diversify away from dollar reliance in part to fight sanctions thrown against it as well as its partners but also to strengthen its own ambitions to have its currency the currency of its allies really rival if not it's the 47 year old petro dollar standard which is the effective monopoly globally with regard to oil or gas pricing so there's a lot of you know it's a game of chicken really high on the scenes there's a lot who is going to be able to see exactly and there's a lot of moving parts of the as you've just explained here come on it's go to you in beirut here i mean what. please explain to me why saudi arabia thinks that russia for example is going to blink 1st now its lifting costs are very very low

but its budgetary constraints are extraordinary considering what the the the crown prince wants to achieve there and russia has got a pretty good piggy bank to ride out this these tribulation. the price fluctuations that we're experiencing right now i don't understand the saudi reasoning here go ahead and beirut well obviously it could be there is no reasoning they make in the same mistake they made in 2014 they put themselves in a big deficit in a big big hole and they do in the same mistake all over again there is no economic victory for the su would be by and turning into a confrontation with russia into this and it will backfire it's actually backfired and probably they have to go into the open market and borrow more money and be more that we all know that they're a break even to balance their budget has to be out of around $80.00 now the oil is

close to in the say it might be lower so actually they cannot be in deep trouble especially they have in a war with the man and they have in a war now was russia and probably they they will face a very difficult situation especially now and i'm call it traded on the exchange scene in the couple days how this aramco share has tumbled and all the wealth that . actually projected this is going to be the stock that's going to bring saudi arabia back into into the market and use all of the wealth and investment from our unco to rebuild sued now our uncle is in a deep deep trouble and the suit is in deep trouble i think my best estimate. they miscalculated they should be gone along with the russian coordinating for it that will be more helpful at this point you know let's go to toronto very

interesting because it is public knowledge public knowledge that russia has planned for something like this and they have a budget set separate budgets at a certain price of oil i mean it can go as low as $25.00 and the russians can can ride it out ok i mean they don't want it to be that low but they've made budgetary considerations to be able to deal with that the saudis should have known that it's not a secret go ahead in toronto. yes well i think the saudis have no idea what they're doing and i. had to dig up some history and get some compared there is no snare seem to me plausible that could produce some vantage for saudi arabia right now. one of these scenarios is an intern 1980 s. the saudis and a lot of production to sustain prices but. at that time they reflect

to invite more good users into the into the game forcing more competition on them so that backfired in the eighty's now they're trying the scorched earth. trajectory which seems to be the directed to me to meet seems more directed toward the u.s. sure producers and one else because they're the biggest losers and us banks that gave them the loans in fact this could really trigger another 2000 financial crisis and we're seeing we're seeing the effects in the market already and you've got ahead of me because you're reading my mind across the world there because that's exactly one of the things that i've been thinking about here let's go back to irvine i mean are you is the u.s. shale industry really the target of all of this the saudis have been complaining about it endlessly. it's expanded into the oil market to tremendously over the last 10 years this is the real target of saudi arabia not the russians the americans go

ahead or in irvine. i think the the shale issue is part is a large part a red herring peter because. you know your other guests are hinting at it there this is a currency and really currency standard for energy trading war that's happening but that cannot be announced in the mainstream corporate press u.s. u.k. or europe because of the sensitivities either like you know discussing the matters of of the financial risk posed to the banking system you know really from rivals across your asia rivaling that the dollar standard is equivalent to discussing the nuclear codes and corporate press so they have to go about it saying that a look russia now. is targeting our shale sector russia is doing is essential e geo political and geo economic jujitsu or judo or quito you choose the martial

art ok the west has traditionally as your other guest referenced utilize the oil price for geo political purposes mid eighty's it was a tactical drop in the energy price to torpedo the soviet union you had it reprise began you know with iran and kind of 7677 to take care of a wayward disobedient shah of iran back then and then just 6 years ago you had a aggressive drop that was court made in the price of oil to affect the books of russia iran venezuela nigeria really kind of nations that have been leaning eastward or leaning certainly away from the washington consensus this time you had enough slack to where russia was reading the tea leaves preparing itself going in despite seeing eye to eye with the saudis on various things over the past few years sensing that this could be a tactical maneuver why again i'm a broken record on this no one within saudi arabia runs saudi arabia saudi arabia

takes dictate. from banks within london and new york and this is you know that's why there's infighting within the house a saudi have mohamed bin solomon resting in other members of the house of saudi is because there is the wanting to lean further towards the east because the numbers in the economics in the longer term are more sustainable makes sense whereas you have the traditional relationship you have the post world war 2 establishment you know between the u.s. and saudi arabia that has evolved into what the petrodollar set up after the gold standard ended in the early seventy's and that paradigm is starting to give none of this can be discussed out in the open you know have analysts on bloomberg or c m b c or in the f.t. or what not bluntly discussing the risks but as your other guests hinted there's already a you know a kara selling or a cascading effect within western finance a 6 month spell of oil below $40.00 could devalue as much of the western financial

system because $1.00 trillion dollars is the amount of energy or debt that's tied up just between you know larger banks as well as mid tear banks and energy producers and when the u.s. has nothing else really the west has nothing else but to throw the kitchen sink yet in order to try and prevent a an eclipse of the dollar standard what it's doing is shooting itself in the exactly one of the things that's very interesting is that you use the dollar is a political weapon it comes back like a boomerang and hits you this is what i've been saying for years here you shouldn't use it as a political weapon or gentlemen we're going to go to a short break and after that short break we'll continue our discussion on the crude carnage stage with our.

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you we're discussing crude carnage. ok let's go back to come on in beirut on this program i always try to avoid hyperbole but it seems to me considering the behavior of saudi arabia over the last couple of years under the nominal leadership of the crown prince here he's putting the entire kingdom it risk isn't he this is an extraordinary gambit we just pied just gave us the numbers there and i think that's just the top level i mean when you see the whole financial ization of the energy markets here it doesn't take much to rattle the cage and the cage is being rattled go ahead in beirut. obviously he's taken a huge risk. which is kind of backfired as of the early and it probably is going to hear it from the president of the united states because it's going to backfire not on em it's going to backfire on mr trump himself because he had built his his

reputation as he's going to make the us independent in terms of oil and gas and today there is screaming in the united states from all these oil oil company who is actually the most of the there are stocks in the red some of them is down 50 percent some of them down 70 and 80 percent and some of them have really in that basically they're going to go into bankruptcy protection saw i think they probably somebody from those oil lobby they wanted to mamak been some man had because they but a mental business of this is a in reality it does help russia on the other hand because you know you know the united states mr trump he tried to put sanction against against russia and nord stream and now they. gave a gift in and

a sense to the restaurant because in a way this will eliminate some of the competition in direct plea for or for the russian by having a probably further investment in the shale gas in the united states if it's going to be a very impossible to continue as mr trump tried to do today i think amplification is going to be tough for the sudanese they're going to face the bleeding of their financial resources there or they're there and downwind is going to be depleted gradually vest what what we will see those $500000000000.00 actually they cannot be at least is going to be affected by this downturn in oil prices and i think it's going to be a lot and. in the in the in the united states the situation is very bleak for him personally because that gamble at this point

a doesn't help him it doesn't help his reputation it doesn't help aramco stocks and it doesn't help that international economy in the end yes the international economy needs some economic boost but you have to remember these these stocks have basically a lot of countries live on them including in the united states i was looking at some research there is 6 states depend on the price of oil and gas and today probably some of these jobs millions of jobs that were created by shell gaza revolution probably probably going to see a treat for that revolution and defeat for that revolution probably a lot of those lobbyists are pointing at mohamed bin settlement and that's probably the screaming that happened at the white house just recently. as. jews day because they came and met with the president and they have a lot of and that baggins mamak been some man because they accuse him of being

responsible for the crash of the oil and gas market yet and it's going to take a while to rebuild it even if they reverse here let's go to toronto you're outside or you were nodding your head in agreement there go ahead come out we just heard go ahead well i mean agree because again as i mentioned earlier i don't see any logic whatsoever her been summoned to pursue this policy now putting it more in context the oil production increase and there was also announced in conjunction with the arrest of rivals to this room or at least those who. considers rivals return his cousin naive who was once head of military intelligence one very close to the american. and he was the one that cooperated with the united states in fighting terrorism serbia for many years and a few other princes now they're in house arrest but this strategy to isolate these

very key figures in the kingdom and then to announce this policy it seems to me that he's really challenging the united states more than anyone else and. i'm wondering if this is blackmail to get trump to do something political terms in the region. i don't we don't bring much about iran anymore on wednesday i believe the. there was a strike an american base in iraq where 2 american servicemen were killed and the british soldiers well will that have any implication as it did in. the late december against iran is. trying to get the united states to do more in iran threatening these kind of economic weapons. looked at all those

scenarios and again there is. so man must be a total gambler because there and knowing why because he he himself probably cannot come up with explain the logic behind this. you know why are we looking at a par another 2008 financial scenario here because they so much of the economy is leverage to energy and to the price of energy here i mean is it is this something that you it worries you go ahead in irvine. yes we were somewhat referencing at myself and i believe your guest and chrono earlier byte you already have essentially triple be rated bonds within the energy sector that's just just you know barely investment grade. as of the timing of the dropping of prices within the energy sector aggressively over the past 2 weeks you have those triple be rated bonds now effectively trading as junk bonds yeah now you give that enough time you

know at a price sub $30.00 really sub $40.00 over 68 month period and the math does itself there's a collapsing within the wider credit space and just yesterday you had trump sitting with you know the c.e.o. of bank of america to its immediate right the head of citi group to the right of him solomon of goldman sachs right across from him having a century a reprise of the sort of meeting that was taking place 12 years ago with the heads of banks reassuring the president as well as the country on camera that quote you know our books are safe or in solid shape which is you know trillion in a cage and they don't you know you're in trouble you know you're ready for the debt from 12 years ago wasn't taken care of it when they do that you know you know just a couple of things really quick i had going. so your other guest was referencing there were sanctions thrown yes the timing of the sanctions thrown against rose naf

against gazprom naf against gazprom you know the clamping down on the north stream to the timing from the west from the u.s. from washington against these russian firms happen to just overlap and i don't think it's a coincidence with these firms going off of the dollar as far as their dealings with europe and the rest of the world for oil and natural gas and the ruble per se strengthening as i mentioned earlier so it's somewhat to most viewers you know the minutiae of finance within the energy space and banking but it really needs to be brought to the fore i would urge your viewers to really look behind kind of prescribe headlines to see this as an unprecedented war between the strongest. currency on record the dollar dissipating against rival currencies wanting to take its place certainly with regard to the most important commodities on earth oil and

natural gas. come out it's go back to you in beirut where is this going to go i mean i've read some reports that the saudis will come up with some kind of compromise up 3 is 6 months but you know m.b.'s doesn't strike me as that kind of person i mean he's decided in let the chips fall where they may and i and i think that. actually on point here it has a lot going on inside internal saudi politics as well is quite frightening actually when you read about it and learn about what he's doing here he doesn't seem like a person that wants to change his mind or can have his mind changed the americans put pressure on him go ahead in beirut. i think it's this is this is a. fact. election in the united states because as i said early president trump put his for petition on the line by having the united states to be a sovereign state in terms of its need for oil and gas and today as your guest

mentioned they are all these companies that are actually in the red and most of them in junk status which is devastating for for for his. promise that he's going to make the united state independent this is against the objection of many people in the united states because he compromises the environment now he compromised the environment and he compromised this company by having a partnership by ways of mohammad bensalem and all those $500000000000.00 that he had received supposedly as an investment from from from sudan they have they have been destroyed in this matter miscalculation and the probably the losses for american couple a company could be more than that and probably going to be devastating for a for the u.s. company and they need a lot of time to work them out in the other side maybe the russian will feel some

pain but they cannot be actually there that kind of come out winning the competition because all along. president trumbo who was trying to push europe to buy american shale gas that expense of their security where we noticed that he was a pressure in germany merkel other countries in that region and this is now maybe this is worked out for the russian without wanting to have this confrontation they can use it and play it but it and so do fades and then the american phase and probably. this is going up but probably the hoped for president from being elected again on the line because you have to remember he bragged about the market is up there of the market really in big trouble and the oil sector bring in what

we're out of out of the market so if he's a probably going to grab that he got a good deal of corporations they want to himself i have to jump in gentlemen he is run out of time one lesson to be learned here energy security and sovereignty is of utmost and russia's done that many thanks to my guests in beirut irvine and in toronto and thanks to our viewers for watching us here are to see you next time and remember cross talk rules. this is a story of women women was troubled histories and complex cold cases you know some of us date leave who lives out there. who were not. the person that. cheesiness of the day are considered the most dangerous of criminals

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