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Saudi Arabia could flood the market with oil in order to control the price.
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This will create a difficult situation for Russia, which depends on higher crude oil prices.
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One analyst suggested the market could see a repeat of the 2020 oil price war.
Russia’s wartime economy could face a tougher time meeting the oil revenues it needs if Saudi Arabia captures global crude prices.
The kingdom has reportedly signaled that crude oil could drop to $50 per barrel if the Organization of the Petroleum Exporting Countries does not commit to cutting oil production.
In other words, Riyadh signaled that it could flood the market with oil supplies, analysts said. The move would depress prices and punish OPEC members who do not cooperate in reducing oil flows – including Russia.
“With Russia already selling oil at discounted rates and with higher production costs, the low-cost environment in the oil market could affect its ability to finance its aggression in Ukraine,” wrote Luke Cooper, a researcher at the London School of Economics. for IPS Journal.
Saudi Arabia, the de facto leader of OPEC, has been trying to keep oil above $100 a barrel by forcing member countries to cut production.
But with international crude oil hovering below the $80 mark, this is unlikely. To switch strategy sources told the Financial Times that Riyadh now plans to turn on the tap in 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. “The leadership of OPEC is a multifaceted responsibility. It is possible, but it is also like herding cats – it is not possible, at least for a while.”
S&P Global Ratings data ranks Russia among the overproducers in OPEC+. According to the last available data, Moscow produced 122,000 barrels above its daily quota in July. Iran and Kazakhstan also breached the agreed threshold.
Henderson suggests that some coalition members may do this to maximize profits.
In Russia’s case, Moscow is under pressure to slow down as much as possible, as the war in Ukraine has set back defense and security spending during the three-year war. These sectors will account for 40% of all federal expenditures in Russia next year.
Russia’s finances, meanwhile, depend heavily on oil revenue. A few years ago, gas and oil production made up 35%-40% of the country’s budget revenue, the country’s finance minister said this week.
Because of this, the West has focused heavily on reducing Russia’s oil revenues. Consider the Group of Seven’s $60 price cap on Moscow’s crude oil: although the two-year initiative has not gone as far as hoped, it is seen as key to keeping oil supplies stable while denying the Kremlin much-needed revenue.
