Who will blink first? Russia in better position to win oil price standoff with Saudi Arabia
Crude oil prices suffered the biggest one-day fall since 1991 on Monday after top oil producers failed to agree on new output cuts and Saudi Arabia decided to boost production and offer discounts. Such an upheaval inflicts pain not only on Russia and Saudi Arabia, but also on all the members of the Organization of the Petroleum Exporting Countries (OPEC). However, Riyadh is clearly going to lose this price war, says Eike Hamer, political commentator and publisher of the Wirtschaft Aktuell newsletter.
“[The Saudis] are playing a very dangerous poker game, and they’re playing it against a chess player. But they don’t have a good hand. But the chess player has a very good hand and the chess player is Russia,” he said in an interview with RT.
Despite both Russia and Saudi Arabia being reliant on oil, Moscow has much more room for maneuver due to its vast gold reserves and its budget policy in recent years aimed at cutting the nation’s dependence on energy exports. On the other hand, Saudi Arabia has a running budget deficit of over $50 billion and has limited funds abroad.
While both players can sustain low oil prices for some time, Riyadh cannot afford to be in this situation for long, with some analysts noting that it can only stay afloat for a year or two. The Russian finance ministry said that the country can stay afloat for up to 10 years, even if oil prices stay between $25 and $30 per barrel.
“It seems like a death spiral downward to see who is gonna blink first,” said Oil Associates LLC President Andrew Lipow. “But a Brent price of 40 dollars a barrel means that Saudi Arabia burns through about 120 billion dollars a year. So I think they almost play a game of chicken between themselves and the rest of the oil market.”
“Russia can probably sustain this for longer than Saudi Arabia,” Research Director at NXTanalytic Alessandro Bruno told RT. “It’s truly mind-boggling what the crown prince [Mohammed] bin Salman decided. Because by lowering prices he also lowers Saudi Arabia’s budget capabilities.”
Oil market turbulence will still have an impact on Russia, as well as on other oil producing nations of OPEC. Saudi Arabia’s oil price war could also have a surprising target: Iran, the kingdom’s regional rival. Bruno noted that the Islamic Republic has been severely hit by the coronavirus epidemic and needs stable budget revenues.
“They think they’re putting pressure on Russia. But they’re also putting a lot of pressure on Iran,” Bruno said. “The Iranian economy is far more diversified than the Saudi one, but that would be more the target than Russia.”
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