No one ignores the law of the market anymore: if demand is greater than supply, prices increase. Conversely, if supply exceeds demand, prices fall. Many are unaware, however, that this same rule intrinsic to the capitalist world could seriously damage Russia's finances.
A hydrocarbon kingdom, Russia relies largely on oil and gas to support its economy, and its costly war in Ukraine. According to estimates reported by Le Monde, revenues from hydrocarbons cover between 30% and 50% of Moscow's budget. An existential windfall for the country, which seeks to circumvent the sanctions on black gold deployed by the West since December 2022. And for good reason: since November 5 Bloomberg, in October 2024, Russia's oil revenues have decreased by 29% from the previous year, painfully reaching 1.05 trillion rubles ($10.7 billion).
So for Moscow all means are good: a black fleet of illegal oil tankers, a seduction operation on the Asian markets… Results: oil rubles continue to flow into Russia, despite the Western embargo. Therefore, only Saudi Arabia could be able to eat into Russian oil revenues, and this will not happen without damage to OPEC+.
Saudi Arabia's veiled threats
Saudi Arabia is working hard to keep the price of oil above $100 per barrel, pushing OPEC+ member states to reduce their production. But international crude continues to oscillate below $80. A situation that puts the kingdom in danger. According to the IMF, Saudi Arabia needs an average oil price of $96 per barrel to balance its budget, compared to $85 for Russia.
In October, the Wall Street Journal reported that a Saudi minister had threatened to voluntarily drop the price of a barrel to $50 if “the cheaters” of OPEC+ did not respect the production limits set, to cause a shock wave. How ? By simply increasing production and flooding the market.
These statements were unanimously considered by the cartel as a real threat from the oil kingdom, which could launch a price war to maintain its share of the global market. Mohammed bin Salman has the means: Saudi Arabia can quickly increase its production by more than 3 million barrels per day, the kingdom recalled in February.
Russia, poorly equipped for an oil war
One of the countries that would suffer the most, and the fastest, from a price war leading to a drop in the value of oil is Russia. The country, considered by S&P Global Ratings as “overproducing” (producing above its quota), can now only go up to 500 to 700 additional barrels daily, recalls The Insider. “While Russia already sells its oil at reduced rates and with higher production costs, a low-price environment in oil markets could affect its ability to finance its aggression in Ukraine”writes Luke Cooper, researcher at the London School of Economics, for the journal IPS, relayed by Business Insider.
Russia would also be limited in its price war against Saudi Arabia. Unlike that of the kingdom, “its oil is not cheap to extract, making it ill-equipped to deal with low-price conditions”explains Luke Cooper. “This pushes a short-term escalatory logic for Russia's war in Ukraine, requiring rapid battlefield successes before low-price oil market conditions emerge.”
Russia will certainly seek a compromise with Saudi Arabia and the rest of OPEC+. Moscow cannot have forgotten the discord of 2020: irritated by Russian overproduction, the Saudi kingdom had lowered its official prices for its buyers in Europe and Asia, monopolizing the market. Result: at the beginning of April, Russian crude from the Urals was trading around 10 dollars per barrel, forcing Moscow to compromise. Therefore, Russia is faced with a choice: restrict its production and raise its prices, or risk the wrath of Riyadh and the fall in oil revenues, while the war in Ukraine empties its coffers.
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