Saudi Arabia will leave Russia without money for war if oil prices collapse – Politico
Pravda Ukraine
Moscow will lack the funds to support its war economy if Saudi Arabia fulfils its plans to increase oil production to regain market share.
Source: Politico
Details: Saudi Arabia is increasingly frustrated by the failure of other oil-producing countries to coordinate supply cuts to raise oil prices to around US$100 per barrel (currently around US$70).
Traders predict Saudi Arabia may respond by increasing oil exports to capture market share and generate more profits even if prices decline.
This strategy could cause oil prices to fall, which would be bad news for Kremlin leader Vladimir Putin. Saudi Arabia’s possible move poses a “huge risk” to Russia’s budget, as the country is overly dependent on oil revenues. This is just one of several unpredictable factors, such as the US presidential election.
Politico also noted that Saudi Arabia “understands perfectly well that Russian companies do not comply with the demand to reduce production, so they are making their own plans.”
Oleksandra Prokopenko, an economist and fellow at the Carnegie Endowment for International Peace, agreed that the stakes for the Kremlin are very high.
Quote from Oleksandra Prokopenko: “At current exchange rates, a US$20 fall in oil prices would lead to a RUB 1.8 trillion (US$20 billion) fall in revenues. That’s equivalent to about 1 per cent of Russia’s GDP. The government would face a choice of either reducing spending – unlikely during a war, or accepting inflationary pressure and stiflingly high interest rates.”
Russia’s revenues from fossil fuel production also rose by 41% in the first half of this year alone, reported the Russian Finance Ministry, despite Western sanctions imposed over the war in Ukraine.
Background: Saudi Arabia’s Energy Minister warned that oil prices could fall to US$50 per barrel if OPEC+ member countries that violate the agreements do not adhere to the agreed production limits.
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