Russia needs money from oil sales, in particular to finance its war against Ukraine. But Saudi Arabia could soon spoil the affairs of the master of the Kremlin.
Thomas Wanhoff / t-online
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Western sanctions against Russia have considerably reduced Vladimir Putin’s room for maneuver. However, it still manages to export some goods in order to bring money into the state coffers to finance its war against Ukraine. Russian oil thus plays an important role – it is one of the main sources of income for the country. But that could soon end.
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Discontent with cheap Russian oil is growing in Arab countries, says Business Insider. Saudi Arabia, the largest member of the Organization of the Petroleum Producing Countries (OPEC), has long tried to keep the price of oil above $100 per barrel. Crown Prince Mohammed bin Salman – nicknamed MBS – needs this revenue to finance his “Project 2030” megaprojects. He has therefore asked OPEC members in recent months to reduce production – without much success so far.
The price of oil is stagnating around $80. In question? Overproduction of Russian oil. Moscow, for example, produced far more oil in July than required by quotas, said S&P Global Rankings, which reviewed publicly available data.
“Saudi Arabia is fed up”
Russia is dependent on oil money, which represents approximately 40% of state revenue. But Saudi Arabia may soon lose patience. “Saudi Arabia is fed up,” said Simon Henderson, director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute, at Business Insider. According to the Financial TimesSaudi sovereign MBS is reportedly considering engaging in a price war to bring Russia to its knees. If the sheikh opens the oil taps, the price could fall to $50, which would blow a considerable hole in the Russian budget.
The Russian Economy Ministry raised its forecast for oil and gas export sales from $17.4 billion for 2024 to $239.7 billion due to a more positive price outlook. , according to a document consulted by Reuters.
Will the 2020 price war repeat itself?
Simon Henderson, American specialist in the evolution of oil prices at the Washington Institute, believes that the price war of 2020 risks being repeated. At the time, Saudi Arabia and Russia were at loggerheads, Riyadh was flooding the market with oil from its reserves. At the time, the price briefly dropped to $20 a barrel.
Such prices would pose a big problem for Russia. “As Russia already sells its oil at discounted prices and with higher production costs, a low price environment in oil markets could affect its ability to finance the war in Ukraine,” wrote Luke Cooper, a stock market researcher at the London School of Economics, forIPS Journal.
Russia has already announced that it will reduce production next year. Production is expected to fall further to 518.6 million tonnes, down 11.4 million tonnes from the previous forecast. It is unclear whether this is due to pressure from the Saudis or whether Russia is experiencing difficulties with its oil production. Because unlike Arab countries which extract black gold from desert soil quite easily, production in Russian Siberia is significantly more complex and accompanied by higher costs. If the price falls, Putin will soon no longer be able to make a profit.
Translated and adapted from German by Léa Krejci
