There are some of the craziest geopolitics going on around the world and it all stems from the world energy policies over the last 10 years.
A couple of weeks ago in one of my posts, I put “One immediate impact to the oil and gas commodities boom – Saudi Arabia can pay their social programs without forcing Saudi Aramco from going into more debt. Saudi Arabia is already forecasting their Budget balancing in 2023. Let that one sink in for a moment. ” The graph below is their budget forecast.
Saudi Arabia is not planning on the U.S. Shale coming back anytime soon and with good reason. The dynamic duo of Russia and Saudi Arabia as the power couple on the OPEC + board will have a significant impact on the direction that oil prices will head in the long term. The long term as I see it is after 3 years in the future.
This morning Bloomberg published “Putin Is Back to Building Financial Fortress as Reserves Grow”. Playing chess against Putin would be a tough match. As Russia is approaching record exports in energy, he is smart enough to not spend all of the revenues.
Looking at the forecasted revenues for the energy portion of the Russian GDP growing at an exponential rate, one can assume that the entire countries GDP will grow more than other countries without energy exports. the key two paragraphs are below.
“For the wealth fund, that means Putin wants to raise the threshold at which the government can begin spending from it on infrastructure projects to 10% of GDP from the current 7%. Fed with revenue from oil and gas, the fund isn’t expected to reach the higher threshold until the end of next year.
The government predicts the fund will break $300 billion in 2024, up from $190.5 billion now. The Finance Ministry says the extra money is needed “to reduce long-term budget and macroeconomic risks that might arise from the energy transition,” a reference to the possibility that a shift away from oil and gas and toward low-carbon energy sources in major consumer markets could deal a major blow to Russia’s finances.”
The Bottom Line
Taking a look at both Russia and Saudi Arabia they have played the energy poker game better than most of the rest of the countries of the world. They both have not forgotten where their bread is buttered. Both have started migrating to renewable energy in a path that is more fiscally responsible. Look at the European energy crisis caused by years of poor energy planning and a rush to renewables without proper planning.
Both will not be releasing more products in the short run to help the supply side. This morning Reuters published “Saudi energy minister dismisses calls for extra OPEC+ barrels”
Another key element for both countries is the balanced budget focus. A balanced budget will keep inflation at bay. The rest of the world will not be so lucky. Let’s look at the world’s inflation rates in 2 years. You will see these two countries not having an inflation problem.
The United States, Europe, and every other country printing money to implement poor energy policies will continue to have high inflation rates for years. There is no way that the migration to renewable energy will be able to take center stage as the energy crisis we have entered is not going away within three years.
Both Russia and Saudi Arabia should be applauded for their fiscal policies, and working on both fossil and renewable energy projects. The U.S. could learn from both before we look like Europe. Let’s get together and do what is best for the environment, our citizens, and our country. It starts with talking to each other.
Buckle up, get your delta wing flight suit on, we are in for some interesting times ahead.
Send me your thoughts and I would like to hear from you about your thoughts on the current market.