19h00 ▪
4
min reading ▪ by
Luc Jose A.
In the midst of a period of global economic volatility, Saudi Arabia has made a decision that could well redefine energy and geopolitical balances. As the price of a barrel of oil reached $100, Riyadh chose to significantly increase its oil production, a move aimed at lowering crude prices on international markets.
A Saudi strategy to lower oil prices
Saudi Arabia, the new member of BRICS and the world’s largest oil exporter, announced a substantial increase in its production in order to put pressure on the price of a barrel, currently at $100. This strategy, described as a response to market instability, aims to calm inflationary fears plaguing many global economies. According to official statements, Riyadh justifies this decision by the need to “maintain a balance in energy prices and support global economies”. This gesture also constitutes a break with the current production reduction policies adopted within OPEC+ and BRICS to maintain high prices on the one hand, and absolute control of global oil production on the other.
The Saudi decision is all the more critical as the global economy is going through a period of great uncertainty. Such an increase in supply could quickly lead to a fall in oil prices, which would directly affect the revenues of other producing countries, notably Russia. For Moscow, whose oil revenues represent an essential part of the national budget, this new drop in prices could worsen the economic difficulties caused by Western sanctions, and further reduce its ability to finance its operations in Ukraine.
Russia faces new economic pressure
Indeed, the increase in Saudi production and the subsequent drop in oil prices could constitute a major blow for Russia, whose economy depends heavily on hydrocarbon exports. This potential drop in crude prices directly threatens the Kremlin’s revenues, and would further weaken this economy already weakened by Western economic sanctions. Thus, a prolonged fall in oil prices could reduce Russian tax revenues by several billion dollars, which would pose problems for financing public spending and, in particular, the war in Ukraine.
Faced with this possible loss of income, Russia will have to turn to alternatives and unconventional solutions to maintain its flow of capital.
The increase in Saudi oil production and the resulting fall in the price of a barrel are not without consequences for the Russian economy. Already weakened by sanctions and the war in Ukraine, Russia now faces a reduction in its oil revenues, which could further accentuate its economic difficulties. However, it is to be hoped that this situation does not further accentuate tensions within the BRICS group, to which these two powerful oil producers belong.
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Luc Jose A.
A graduate of Sciences Po Toulouse and holder of a blockchain consultant certification issued by Alyra, I joined the Cointribune adventure in 2019. Convinced of the potential of blockchain to transform many sectors of the economy, I took the commitment to raise awareness and inform the general public about this constantly evolving ecosystem. My goal is to enable everyone to better understand blockchain and seize the opportunities it offers. I strive every day to provide an objective analysis of current events, to decipher market trends, to relay the latest technological innovations and to put into perspective the economic and societal issues of this ongoing revolution.
