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Media Buzz: Possible US Oil Sale as Penalty for Russia
March 28, 2014 16:08

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It was Philip Verleger, founder and president of PK Verleger, who first who brought up the oil curse option in early March. According to the economist who used to work in the White House and the US Treasury in the 1970s, the US must tap into its strategic petroleum reserve to cause a slide in oil prices that would be a real blow to Russia.
America could push down global oil prices by as much as $12 a barrel by selling 500,000 barrels a day from its strategic reserve, he said, costing Russia about $40 billion in lost income from oil and gas sales, equivalent to 2 percent of its economy.
His opinion was echoed by George Soros, who dismissed the current US sanctions on Russian oligarchs as ineffective. By diverting their funds into foreign jurisdictions, these wealthy individuals only undermined Russia’s economy, he added. What’s more important, he says, it that a sale of the emergency stockpile would not damage the US interests because of the boom in shale gas and oil.
Many experts, however, have rebuffed the calls to attempt to lower the prices by selling emergency reserves. “If you use oil and aim it at Russia, you’ll hit Texas,” Bloomberg quotes Kevin Book, managing director of ClearView Energy Partners LLC, a Washington-based consultant, as saying.
Many of the US oil producers don’t have too big a margin to endure its drop, the expert went on to say.
According to Stanford’s Ronald Hilton, “one of the most effective ways in which Reagan’s economic policies weakened the Soviet Union was by helping bring about a drastic fall in the price of oil in the 1980s, thereby denying the Soviet Union large inflows of hard currency".
“Because of the high oil prices of the 1970s the Soviet leadership avoided serious economic reforms, such as those that saved Deng Xiaoping’s China. Instead, it relied on oil revenues as a means of keeping its decrepit economy going. By the early 1980s the Soviet Union was becoming a hollow shell, with an unreformed and increasingly backward industrial base producing outmoded pre-computer armaments. Thus it was highly vulnerable to the pressures that the Reagan administration was planning,” he adds.
Anyway, most analysts seem to agree that any effect a sale of strategic petroleum reserves could have would be temporary. The impact, however, could be doubled if the US finds a way to pressurize Saudi Arabia into expanding their production. Interestingly, US President Barack Obama is meeting with the Saudi King today, on March 28.

“If the U.S. coordinated with the Saudis to ensure that they did not cut back production – indeed, they could even step up production from 9.7 million bpd – the greater supplies could slash prices almost immediately,” says Nicholas Cunningham of 

Author: Mikhail Vesely

Tags: Russian economy Ukraine crisis Crimea Russian oil and gas industry  

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