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Saudi arrests and possible collapse of petrodollar system

The recent high-profile arrests in Saudi Arabia are unlikely to have a long-term impact on world oil prices, energy experts told Trend.  Sam Barden, Director of SBI Markets, an international commodity trading and advisory company, believes that this can undermine Saudi Arabia’s reliability as an oil supplier.

“Saudi Arabia is becoming increasingly unstable politically and socially, and it is entirely likely that this instability will affect Saudi’s ability to be a reliable oil supplier. Some of the princes arrested may well have supply contracts in the market which may be renegotiated or interrupted,” he said. “Other suppliers in the market would likely pick up any slack in the oil market, and I do not see Saudi’s instability putting any upward pressure on the oil market.”

On Nov.4, a number of high-profile arrests were made in Saudi Arabia in the wake of the formation of a new anti-corruption committee headed by Crown Prince Mohammed bin Salman (known in diplomatic circles as MbS).

A formal list of those arrested has not been released, but according to reports, it includes prominent investor Prince Alwaleed bin Talal and former Finance Minister Ibrahim al-Assaf.

At the same time, a minor government reshuffle took place. Notably, Prince Miteb bin Abdullah, son of the late King Abdullah and once considered to be a future king, was sacked as head of the National Guard. Economy Minister Adel Faqih was replaced by his deputy, Mohammed al-Tuwaijri.

Against the backdrop of these developments, oil prices rose sharply on Nov.6. The price for January futures of the North Sea Brent oil mix has increased by 0.66 percent to $62.48 per barrel, while the price for December futures of WTI oil rose by 0.56 percent to $55.95 per barrel.

However, Barden said he doesn’t believe that the current situation will have a long term effect on oil prices.

“I think what we are seeing is the continued collapse of the petrodollar system, and the current moves in Saudi may be a reflection of their move away from the USD towards a system backed by Russia, China and Iran. In this regard, there is likely to be a systemic shift in how oil is priced, towards regional based multi-currency contracts, away from petrodollar system,” he added.

Edward C. Chow , Senior Fellow for Energy and National Security Program at Center for Strategic and International Studies, states that generally speaking, uncertainty causes oil prices to rise.

“Since what happened should have no direct impact on oil supply, I expect prices will come back down after a few days. The longer term implication for oil markets is harder to discern,” he told Trend.

Christopher Haines, head of oil and gas at BMI Research, (a Fitch Group company) for his part, told Trend that what happened in Saudi Arabia is very much a political move, so it will have little or no impact on Saudi oil production and exports – this will support the current Saudi policy to protect the oil price.

He believes that the impact on prices will likely be short-term, unless there is any kind of military concern relating to the missile fired from Yemen.

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