As Oil Prices Plummet, Russia and Saudi Arabia Dig in for a Long Fight

Mar 18, 2020 | 10:00 GMT

A photo of a pump jack extracting crude oil from a snow-covered well located near Surgut, Russia.

A pump jack extracts crude oil from a well near Surgut, Russia. 

(Alexei Andronov\TASS via Getty Images)


  • Crude oil prices are likely to dip further in the second quarter of 2020 and stay at depressed levels due to the ongoing price war between Saudi Arabia and Russia.
  • Saudi Arabia will continue to ramp up its oil output and keep prices low in an effort to coerce Russia into scaling back its own production amid coronavirus-related drops in global demand. 
  • This strategy, however, is unlikely to be successful, as Russia's unwillingness to cut production reflects its longstanding concerns about loss of market share, as well as its much more pessimistic view of the market compared with Saudi Arabia.
  • As global prices plummet, Saudi Arabia's financial reserves will burn at a much more rapid pace than Russia's due to the disparity between the two countries' fiscal breakeven points on crude prices. 

Despite mounting fears of coronavirus-related drops in global oil demand, Saudi Arabia recently signaled its intent to flood the market with even more discounted exports following Russia's rejection of proposed OPEC+ production cuts. In doing so, Riyadh is hoping to force Moscow back to the negotiating table, though such a gamble is almost sure to backfire -- and badly. For one, Russia has long been wary of shrinking its oil output for fear of also shrinking its market share, and is thus unlikely to quickly cave to Saudi Arabia's demands. And compared with Riyadh, Moscow also has more cash reserves to ride out a period of low prices. Saudi Arabia's oil-dependent economy, on the other hand, will be among those hardest hit from the very price cuts to it's now willingly helping to exacerbate...

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