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Saudi Arabia could flood the market with oil to regain control of prices.
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This would create a difficult situation for Russia, which is reliant on higher crude prices.
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One analyst suggests the market could see a repeat of the 2020 oil price war.
Russia’s wartime economy could face a tougher time securing needed oil revenue if Saudi Arabia tanks global crude prices.
The kingdom has reportedly signaled that crude could drop as low as $50 a barrel if the Organization of Petroleum Exporting Countries does not commit to reducing oil output.
In other words, Riyadh is hinting that it could flood the market with oil supply, analysts say. The move would slash prices and penalize OPEC members who have not cooperated in reducing oil flows — including Russia.
With Russia already selling its oil at discounted rates and with higher production costs, a low-price environment in oil markets may impact its ability to finance its aggression in Ukraine,” Luke Cooper, a research fellow at the London School of Economics, wrote for the IPS Journal.
Saudi Arabia, the de facto leader of OPEC, has been trying to keep oil above $100 per barrel by pushing for member states to cut production.
But with international crude hovering below the $80 mark, this hasn’t worked. To shift strategy sources told the Financial Times that Riyadh now plans to turn on its taps by December.
Saudi Arabia is fed up,” Simon Henderson, director of the Bernstein Program on Gulf and Energy Policy at The Washington Institute, told Business Insider. “Leadership of OPEC is a multifaceted responsibility. It can work well, but it’s also like herding cats — pretty damn impossible, at least some of the time.”
S&P Global Ratings data counts Russia among the overproducers in OPEC+. According to its last available data, Moscow produced 122,000 barrels above its daily quota in July. Iran and Kazakhstan also breached agreed-upon thresholds.
Henderson suggested that some coalition members might be doing this to maximize profits.
In Russia’s case, Moscow is facing pressure to rake in as much as it can, as its war in Ukraine has ballooned defense and security spending in three years of war. These sectors will collectively account for 40% of all federal expenditures in Russia next year.
Russia’s finances, meanwhile, are heavily dependent on oil revenue. A few years ago, gas and oil production made up 35%-40% of the nation’s budget revenue, the country’s finance minister said this week.
It’s for this reason that the West has been so focused on curbing Russian oil profits. Consider the Group of Seven’s $60 price cap on Moscow’s crude: though the two-year initiative has not panned out as hoped, it was considered to be a key to keeping oil supply stable while denying the Kremlin much needed revenue.
