- Saudi Arabia is now flooding the international market with cheap oil, a move that could hurt Russia’s dominance in the industry and derail its 2020 economic plans.
- Russia has repeatedly failed or refused to abide by OPEC agreements, prompting the Saudi leadership to crank up oil supplies to unprecedented levels.
- The current oil supply war is likely to negatively impact the Saudi economy, which is largely dependent on the trade.
Saudi Prince Mohammed bin Salman, also known as MBS, has once again revealed his impulsive side to the world in the oil clash with Russia. Glaring evidence of his mercurial nature emerged after the gruesome killing of dissident journalist Jamal Khashoggi in 2018.
The incident sent shockwaves around the world and led to western leaders distancing themselves from him, at least publicly. U.S. security agencies placed MBS smack dab at the heart of the scandal, but no action has ever been taken against him for the misdeed.
Of course, the oil and money wielded by the Crown Prince are enough to shield him against western influences, so long as he maintains his position as a primary ally in the Middle East. His latest escapade has instigated an oil supply war with Russia.
Saudi Arabia is now flooding the international market with cheap oil, a move that could hurt Russia’s dominance in the industry and derail its 2020 economic plans. Saudi Aramco is now offering oil to European companies a discounted rate of $25 per barrel.
The Russia, Saudi Showdown
Saudi Arabia is currently locked in a showdown with Russia. This is following the latter’s refusal to limit oil supply earlier this month after demand for oil fell sharply. Reducing the output would have stabilized global prices.
Both countries are members of the Organization of the Petroleum Exporting Countries (OPEC) group. The organization is comprised of the world’s top oil-producing states, namely, Iraq, the Islamic Republic of Iran, Kuwait, Venezuela, Saudi Arabia, and Russia.
Russia has, on numerous occasions, failed to abide by OPEC agreements and its latest decision not to comply prompted the Saudi leadership headed by Mohammed bin Salman to crank up oil supplies to unprecedented levels. The country’s maximum output had been capped at a maximum of 12 million barrels a day. It has now been increased to 13 million, and the Saudis are making good on their claim.
On Monday, oil prices swooned to their lowest levels since 1991, to $35 per barrel, as a result. This is down from a peak of $61 in January. The Saudis have signaled that they are ready to negotiate, so long as the Russians conform to set agreements.
The Effects on the Saudi Economy
The current oil supply war is likely to negatively impact the Saudi economy, which is largely dependent on the trade. Sixty-two percent of the kingdom’s revenues are derived from oil. The Crown prince had already initiated several programs aimed at reducing dependence on the sector. Still, these are long term projects that have yet to have a measurable effect on the economy.
MBS stands to benefit if he wins this battle. Firstly, he’ll have a bigger market share than the Russians. Second is that he will have won a politically subjective victory if Russia capitulates. There was some speculation that the Saudi Prince had changed his ways after the Jamal Khashoggi saga and would no longer be involved in any more international contentions.
The controversy saw him lose some important business networks. It also made western leaders warier about dealing with him. Subsequently, his Saudi Aramco IPO was shunned by European and American companies. Any illusions about his temperament have now been doused.