Another excellent analysis, succinctly putting all the pieces of the big picture together. You give us a comprehension that we’d be hard-pressed to find anywhere else, Mr. Kust!

In the early days of OPEC, the money pouring in was gravy to be lavished on any delights they wanted to have. But now virtually all of the members of OPEC are completely dependent on that oil for their political survival. So I imagine that OPEC leaders are thinking, hmm, cutting production didn’t shore up prices, and demand is falling and likely to fall further - what can we do to ensure our regime’s survival? Sabotage a Russian production facility, and make it look like an ordinary part of their war? Undercut the regime of a politically weaker OPEC member - such as Venezuela’s Maduro - in ways that kick it out of the picture? What do you think, Mr. Kust - any speculation on OPEC’s moves in their desperation?

Expand full comment

I'm not sure undercutting Venezuela's government more than Maduro himself does is even possible. The man takes incompetence to new heights when it comes to running a country--which makes it a mystery how he stays in power. Even if he weren't such a complete failure on his own, however, Venezuela's current production level is less than 10% of Saudi Arabia's--819bpd/1k vs 9959bpd/1k. Sabotaging them wouldn't have much impact.

Taking out Russia is a different story--Russia and Saudi Arabia have actually had price wars over oil before, which Russia won. So it is not impossible to imagine the Saudis wanting to visit a little misery on Russia. However, Saudi Arabia does not have the special ops resources to send a team into Russia to sabotage an oil facility, and does not have access to Ukrainian drones to do the deed from the air. The country of origin for a drone is easily identified from even the tiniest bits of wreckage, and so Saudi Arabia likely has no way to make such an act of sabotage is a "normal" outcome of the war in Ukraine.

Taking out Russian oil production would be an interesting gambit*, however, and very likely would boost oil prices in both the short and longer term. And it's possible. It so happens that the Samara refinery is near a nexus of several oil pipelines in the network that feeds the oil terminal at Novorossiisk. If that nexus were to be destroyed, Russia's main oil terminal would be largely crippled until the pipelines could be restored.


Meanwhile, the backup of oil in the pipeline network could force Russia to shut down a large number of its oil fields--and Russia has had problems before bringing shuttered capacity back online.


Knocking even a major portion of Russian export capacity offline probably would get global oil prices to that $100/bbl mark Goldman Sachs was touting until just recently. The problem for the Saudis would be how to pull that off.

I suspect the Saudis next moves will be diplomatic within OPEC. They'll work to enforce the existing production quotas in order to restrain supply. At some point, oil demand and oil supply will converge, and then prices will start to rise again. The question on everyone's mind is, of course, where will that convergence take place.

* -- Trivia note: the sabotage of a major oil refinery within Soviet Russia forms the catalyst for Russia's invasion of Western Europe in Tom Clancy's Cold War novel "Red Storm Rising'. Which perhaps makes the idea not as far fetched as some might think, although it is almost certainly outside the realm of what OPEC is likely to attempt.

Expand full comment
Jun 15, 2023Liked by Peter Nayland Kust

Excellent answer, and if I see a headline like ‘Russia’s Samara Refinery Mysteriously Destroyed’, it’s score another prediction win for Oracle Kust. The Saudis have piles of cash, and piles of cash can get you mercenaries who can accomplish just about anything.

As for Venezuela, I just finished reading “Things are Never So Bad That They Can’t Get Worse: Inside the Collapse of Venezuela”, by NY Times journalist William Neuman (2022). I can’t recommend the book, as the author somehow downplays the huge role of socialism in the destruction of Venezuela, and puts the maximum possible blame on Trump. (Did I mention that he writes for the NY TImes?) Still, he tells quite a few illuminating stories. Interviews with people from Maduro’s inner circle spotlight Maduro’s utter, complete lack of understanding of economics, such as, when he was told how bad inflation had become, his solution was to send soldiers into the stores to lower the price tags on all of the merchandise! Now *that’s* clueless. Apparently, Maduro endeared himself to predecessor Chavez by telling a lot of funny jokes, and by becoming a very skilled politician. The only real job he ever had was a few months driving a bus. He is completely illiterate on all aspects of understanding how an economy functions. He stays in power because nearly all of the professional class and producers have left the country, and the remaining uneducated peasants vote for him out of loyalty to Chavez, who was their ‘friend’. The country is a near-total loss. I’m interested in seeing what evolves next - and also what lessons apply to the trajectory of the US.

Expand full comment