Putin is clearly facing an oil price war

Russia needs money from selling oil. But Saudi Arabia could soon disrupt Kremlin leader Vladimir Putin's business.

Thomas Vanhove/t-online

Western sanctions on Russia have greatly limited Putin's room for maneuver. Still, he could export some goods in order to collect funds into the state treasury for the war against Ukraine. Russian oil plays an important role here. It is one of the country's main sources of income. But that may soon be over.

According to Business Insider, Arab dissatisfaction with Russia's cheap oil is growing. Saudi Arabia, OPEC's most important member, has been trying to keep oil prices above $100 a barrel for some time. Crown Prince Mohammed bin Salman, known as MBS, needs revenue to fund his Plan 2023 mega-projects. That's why he has called on OPEC members to cut production in recent months – with little success so far. Oil prices hover around $80. One reason is Russia's overproduction of oil. For example, S&P Global Rankings said based on public data that Moscow's oil production in July far exceeded the actual amount allowed by quotas.

Vladimir Putin in the Kremlin: Dictators may lose oil price war.Image: trapezoid

Expert: 'Saudi Arabia has had enough'

Russia relies on oil revenue; oil accounts for about 40% of government revenue. But Saudi Arabia's patience may soon be broken. “Saudi Arabia has had enough,” Simon Henderson, director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute, told Business Insider. According to the Financial Times, Saudi ruler bin Salman is Consider launching a price war—bringing Russia to its knees. Because if the sheik turns on the oil taps, the price of oil could fall to $50 – which would leave a serious hole in the Russian budget.

Russia's Economy Ministry raised its 2024 oil and gas export sales forecast by $17.4 billion to $239.7 billion due to a more optimistic price outlook, according to a document seen by Reuters. Oil and gas are the main sources of budget revenue.

Will the price war of 2020 repeat itself?

Simon Henderson, an expert on oil price developments at the Washington Institute, believes that the price war of 2020 may be repeated. At the time, Saudi Arabia and Russia were at loggerheads, and Riyadh flooded the market with oil from its reserves. At that time, prices fell to $20 per barrel.

With prices like these, Russia has big problems. Luke Cooper, a researcher at the London School of Economics, wrote in the journal Russian Economy: “Because Russia already sells oil at lower prices and has higher production costs, the low-price environment in the oil market may affect its efforts to prepare for the war in Ukraine. Ability to Provide Funding. ” IPS Magazine.

Russia has already announced in its forecast that it will cut production next year. Production is expected to fall further to 518.6 million tonnes, 11.4 million tonnes less than the previous forecast. It's unclear whether this happened under pressure from Saudi Arabia or if Russia is having trouble producing oil. Because unlike Arab countries, where black gold can be easily obtained from desert soil, production in Russia's “Siberia” is much more complicated and increases production costs. If prices fall, Putin will soon be unable to make any profits.

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