I see this, in part, about being an internal fight within OPEC. For years members have ignored the agreed production limits. Saudi Arabia is showing its muscle and flexing it.
Beyond that, much of the production surplus has frequently come from non OPEC producers none of which can match the Saudis in terms of cost of production. It will not take long for wells to get shut in.
In this mix is ISIL which is an existential threat to the Saudi regime. Who knows what kind of backroom discussions are going on with the US to intervene with more military? But I would be confident that is what Saudi Arabia is asking for. Oil is again being used as a weapon I think.
In terms of the PoG.
Although Russia is the obvious loser .... it is pretty clear the US is also pressured by this decision. As has been pointed out by others, most of the employment growth has come because of the shale boom. [Although, I have seen reference to Texas as the single largest contributor to the employment number ... courtesy of the sustained high price of oil in recent years] With the $US rising [up again strongly last night], the prospect of job losses, the lost tax revenue from oil and the now shale related bad loans floating around ... what's the chance of a QE4? Getting better on a daily basis I think.
Major producers like Russia and Venezuela are having real problems. In the case of Russia which is coincidentally fighting with the West on numerous fronts ... if this goes on for a protracted time, which it shows signs of doing, at what point are they candidates for debt default? They are holding a large position of $US as part of their reserves but it is nowhere enough to cover the external debts they have which are denominated in $US's.
In a situation like this, default by Russia and Venezuela on debts owed to the West is unlikely but a possibility. Things like the alternative, recently formed, BRICs bank might be seen as an option. In which case we would be descending back into the old 'cold war' days with a divided, mutually antagonistic and fragmented international financial system.
Just a few doomsday type musings .... possibly way off the mark, but it does highlight that this is not a simple situation. It also shows just how fragile things are ... one single decision by OPEC has thrown things into disarray. The more complex a system is the more unstable it can become.
