If I were the decision maker in Saudi Arabia I wouldn’t renew the agreement and send oil to $10 and it is based in game theory. Game theory suggests the others in the OPEC cartel will cheat and those outside will free ride. Saudi’s have born most of the cost and the reason why is to float Aramco shares. In two previous posts (here and here) I suggested the Sauds would cut production right before the IPO. So far that has been the case,
But not renewing the agreement would benefit them more than renewing it and adding a few extra percentage to the market capitalization of Aramco.
Russia would blow up causing Assad to fall. This would damage Iran and limit any potential pipeline through Syria. Some have suggested the entire war is over a pipeline.
Regional rivals like Iran would be cash strapped and since Iran is deficient in technology due to the effect of sanctions ramping up production would be challenging at a $10-15/barrel price.
Wall St was quick to lend money to shale players after the rebound. Many shale players are more levered now than they were. Some rushed to pay $60k an acre in the Permian. That is unsustainable in a $10/barrel world. Not renewing the production deal would set back shale development in America 5 years, outside America longer. The cascading bankruptcies could send America into a recession. This would create a loss in Saudi investments in America, but since Congress in America passed the law allowing legal action against Saudi Arabia over 9/11 the Sauds have been selling.
A $15/bbl price of oil would derail Tesla and autonomous cars.
The oil sands would no longer be economic (anywhere) and those reserves would revert to resources under SEC legislation causing debt covenants to be violated, crippling the Canadian energy sector permanently. The oil sands would never come back. They would be mined for asphalt. Shell developed the Albian project originally as a asphalt source. Canada’s housing bubble implodes due to a multi-year recession and massive levels of debt.
This would usher in populists and strongmen around the world that would work closer with the monarchy. Trudeau on the Economist’s cover would have been the perfect contrarian indicator for Liberalism , similar naming Tunisia and Myanmar as country of the year over for small democratic improvements before things turned against democracy.
Saudi Arabia would end up destroying OPEC when countries like Venezuela and Nigeria collapse financially. But Venezuela and Nigeria are going down the drain regardless of cuts.
The Sauds would also be blamed for a global recession, Emerging Market debt implosion and the eventual world war.
Saudi could ramp up production. Store oil and flood the markets when demand out stripped supply.
There would be no more discoveries. The OECD would just drain down current projects while Saudi, Iran, Iraq and Russia go full out to produce at any price and compete for market share. That would monetize the assets before peak demand sets in.