Blaming Saudi Arabia won’t make energy cheaper

How outraged should we be that Saudi Aramco reported record quarterly profit of $48 billion, a giant bonus from the global oil price spike caused by the war in Ukraine? Well, that’s how the cookie crumbles when you’re sitting on oil reserves so abundant and so easily accessible that your marginal cost of producing the next barrel is less than $10 as the market price comes to double to $130 – as it did in March, before falling back to around $95 today.

And you might think that this recent price drop is likely to continue as demand for oil begins to decline with the onset of recession in developed economies – just as you fear your own reserves may one day dwindle. So reaping maximum short-term returns is the best thing you can do for your still underdeveloped desert country, especially if (as Aramco likes to do) you can present a narrative about reinvesting some of the profits in hydrogen and other green technologies that will eventually get you to net zero.

That’s obviously how Saudi leader Mohammed bin Salman – MBS for short, best known for denying he ordered the murder of dissident journalist Jamal Khashoggi – thought last month at the time of his infamous fistfight with Joe Biden in Jeddah. . This gesture of deferential acknowledgment from the US president and his request for help in facilitating oil supplies has earned what has been widely called “a slap in the face” from the OPEC oil-producing group of nations. led by Saudi Arabia, in the form of a token production increase of 100,000 barrels per day – as OPEC’s own forecasts indicate daily global demand is poised to top 100 million barrels .

Meanwhile, MBS’s relative, Prince Alwaleed bin Talal, reportedly invested half a billion dollars in three sanctioned Russian oil companies, Gazprom, Rosneft and Lukoil, just at the start of the war. To answer my opening question, outrage at any windfall profits is usually unnecessary – but what this story tells us is that the super-rich Saudis see Western powers as supplicants who can be exploited at their advantage, and the pariah that is Putin’s Russia. as a regime with which they can do business. That’s realpolitik – and it’s not going to get any of us through the current energy crisis.

Flatten the top

Speaking of which, there is little comfort to be drawn from the news that the Centrica Rough gas storage site under the North Sea off the Yorkshire coast – the closure of which in 2017 was lamented by James Forsyth last week – has been approved for reopening next month. Even though the facility only holds a few days of fuel, it should mitigate the risk of shortages and shutdowns at peak times. But there is so far no practical proposal that comes close to the central and most certain feature of this crisis, which is the rising and rising household and business energy bills, driven inexorably by the world gas price.

Sir Keir Starmer’s proposal for a temporary consumer price freeze, costly for the Treasury as it is, might have some merit if it reduced inflation and prevented corporate bankruptcies while addressing the urgent priority of enabling the poorest households to stay warm throughout the winter. But that won’t happen, because he’s not in power and a Truss government, if that’s what’s coming, isn’t going to borrow it from him.

Instead, we are promised untargeted tax cuts as well as possible reductions in VAT and green levies. But what the new administration should be borrowing, whether from political thinkers on all sides or from the energy companies themselves, are ideas that could create a less crisis-prone energy market while flattening the peak and extending the impact beyond the point (most likely after a possible ceasefire in Ukraine) at which gas prices begin to fall back to normal.

The best so far is a scheme launched by Scottish Power and Eon (and reported in the Sunday time) for a bank-funded, government-backed “deficit fund” that would allow suppliers to cap customer bills for two years, regardless of world prices, borrow the resulting shortfall and pay it back over ten to fifteen years. Let’s face it, ministers alone cannot repair the ravages of this geopolitical earthquake, nor can the forces of liberal capitalism. But an enlightened combination of “whatever it takes” government and long-term strategic business leadership surely holds that power.

The British are back

At least I spotted one contractor with a spring in his step, despite all of the above: it’s the local real estate agent in Deep France and he’s never been so busy. French city dwellers took to buying rural property during the pandemic and haven’t stopped. More surprisingly, he tells me, “the Brits are back” after several years in which many sold out and returned to Blighty. This summer – despite sterling’s weakness, heightened pet passport bureaucracy and the 90-day out of 180 residency limit in the Schengen area – UK shoppers are so eager for some sales to be completed without a visit, simply based on a FaceTime visit.

What is happening? The surge is partly a fallout from what Rightmove calls the “frenzied” rise in UK property prices over the past two years. This month’s seasonal drop may herald a weaker market in the fall – but even so, if you can sell your suburban semi for a million, less than half the proceeds will buy you a small medieval castle in my own Dordogne village or a farm with two gite rentals just above the Lot hills. And despite inflation, the remaining money could fund you for a decade.

The other factor is the house‘s relentless doomsterism. Try sitting on a sunny French breakfast terrace listening to the Today the program’s tale of miseries to come, from power cuts and crop failures to the collapse of the NHS. The last weeks Spectator Sarah Vine’s diary, sent from a few miles further south, captured exactly that sentiment. His punchline, ‘You know where to find me, Health‘, sums up a real estate boom that no one saw coming.

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