Making Sense of the Saudi-Russian Oil-Price War

Areeshya is a second year politics student keen on breaking down what is happening with the Saudi-Russian Oil Price War. Looking at the fallout itself, its immediate and wider implications as well as who may benefit from the conflict overall.

What was the trigger?

The Saudi-Russian Oil-Price War began with The Organisation of the Petroleum Exporting Countries (OPEC) convening on March 6th in Vienna for a meeting. Russia did not want to be pushed by Saudi Arabia (the unproclaimed driving force behind OPEC), into making cuts to oil production. The Kingdom wanted to reduce output to increase prices further as the coronavirus has caused a significant reduction in energy demand. With Russia refusing to do the same, Saudi Arabia responded by providing discounts to buyers and a commitment to pump more crude; instigating a conflict that has continued to have serious global ramifications.

The immediate aftermath

Saudi Arabia announced it would increase its supply next month to more than 12 million barrels a day, and Russia announced an increase in production by 500,000 barrels with future plans for more production. The immediate implications of the fallout included the fall of the Brent crude (the global benchmark) in price from $50 a barrel on March 5th to below $32 on March 9th.

The effects have been felt across many countries. Japanese shares fell by almost 6 percent. With a sharp influx of oil supply, the US shale boom has reached its end with production decline as companies struggle with financial distress. The Abu Dhabi National Oil Company (ADNOC) has committed to supplying more than 4 million barrels a day, next month.

Canada’s Western Canada Select (the benchmark grade produced by Canada oil sands) dropped about 26 percent to $20.69 a barrel on March 9th itself. Alaska receives around 70 percent of its operating income from the oil and gas industry and has had to lower its price from its state budget of $59 per barrel in the coming fiscal year to around $31; indicating an evident need for energy diversification.

The “fragile five” members of OPEC; Iraq, Angola, Nigeria, Libya, and Venezuela are going to be further destabilised by the effects of the oil-price rift. The group shares an experience of unplanned production declines as a ‘result of under-investment to offset natural declines, civil unrest, or sanctions.’ With Angola coming in to form the new “shaky six” with violent strikes and violent unrest causing tensions.

What does the future hold?

As of now, one country that does benefit from the situation, is China, one of the biggest oil importers. Given that they are recovering from the global Covid-19 pandemic as well, their demand for oil will slowly start to increase again. Russia and Saudi Arabia have remained confident that they can survive what this price war will entail. However, whether the additional countries feeling the consequences will become collateral damage is to be observed as well. Expect developments over the next few months with the Covid-19 outbreak playing a notable role in the evolution and outcome of this price war.



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