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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Russia Won’t Blink First In The Oil Price War

Russia will not be the one to first demand a stop to the oil price war with Saudi Arabia because Russian President Vladimir Putin is unlikely to yield to what he sees as “Saudi blackmail,” sources familiar with Moscow’s thinking told Bloomberg.   

The OPEC+ coalition between OPEC’s leader Saudi Arabia and the leader of the non-OPEC nations in the production cut deal, Russia, abruptly ended earlier this month after Russia refused to back a huge additional supply cut in response to depressed demand. Saudi Arabia didn’t take that break-up too well, and made a U-turn in its oil policy, saying it will be pumping at will and supply the oil market with record-high volumes of crude oil in the coming months.

Russia isn’t backing down either, promising to boost production, too.

OPEC members Saudi Arabia and the United Arab Emirates (UAE) are flooding the oversupplied market with oil, going for Russia’s market share, while Russian oil firms also plan to boost production as of April 1.

Putin doesn’t have immediate plans to contact either the Crown Prince or the King of Saudi Arabia, the Kremlin spokesman Dmitry Peskov said on Monday, as carried by TASS.

“Putin is known for not submitting to pressure,” Alexander Dynkin, head of the Institute of World Economy and International Relations in Moscow, told Bloomberg. The institute is a state-run think tank which advises the Russian government on topics of international and economic relations.   

Both Russia and Saudi Arabia are set to suffer from the oil price war, as $30 oil is below both countries’ fiscal breakevens, especially below Saudi Arabia’s $80-plus oil price breakeven.

Russia admitted this week that its revenues from oil and gas would be US$39.5 billion (3 trillion rubles) lower than planned due to the tumbling oil prices, and that Russia’s budget would be in deficit this year.

Neither Saudi Arabia nor Russia are currently backing down from the oil price war, but the one who blinks first will likely be the one whose finances will be hurt more.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on March 20 2020 said:
    Russia never blinked when the full might of Nazi Germany attacked it in the Second World War. It managed not only to break the back of the German army and seal Germany's fate but Soviet troops under the legendary Marshal Georgy Zhukov were the first to enter Berlin.

    Does anybody think that Russia under Putin will blink first in an ill-conceived oil price war waged against it?

    By starting a price war with Russia, Saudi Crown Prince Mohammed bin Salman chose the wrong enemy. He is dealing with the world’s most astute statesman and strategist. The ultimate outcome of the price war is already decided.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Brian Bresee on March 20 2020 said:
    Russia was abusing Saudi Arabia at the negotiating table by making them make the largest production cuts, long before Saudi Arabia walked out. Russia would be foolish to not give Saudi Arabia a token reduction as they have all along to end this standoff. Smart businessmen always place making more money with a small concession ahead of their egos, we will soon see if Putin is a smart businessman.

    There is a third party that can ease this standoff, the United States. They are already discussing limiting new well permits in Texas, which will reduce US production. Smart business for Texas would make it happen, because low prices hurts them too. Doing so would allow them to sell some of that natural gas they are wasting while pumping oil, which could be a double win for them.
  • Smooth Rough on March 20 2020 said:
    Its not "war". Its business negotiation. Give something to get something.
  • Ricardo Pereira on March 21 2020 said:
    Just one decision made by these 2 gentlemen, Vladimir Putin and Mohammed bin Salman, can instantly bring relief to the pain caused by Coronavirus.

    CUT THE OIL PRODUCTION
    STOP THE OIL PRICE WAR RIGHT NOW.

    If you are not out of your mind, do not wait until the next OPEC meeting.

    We have enough challenging problems to tolerate something like this.
  • My fund Nolastname on March 21 2020 said:
    Lies lies lies... fiscal breakeven for S. Arabia is $4 per barrel and around $8-9 for Russia.
  • Mamdouh Salameh on March 22 2020 said:
    What 'My Fund Nolastname' mentioned is not fiscal breakeven. It is production breakeven.

    A fiscal breakeven is the price an oil-producing country needs to balance its budget. Russia's budget could live for years with an oil price of $25 a barrel compared with $85 or even much higher for Saudi Arabia.

    For your information, if Saudi Arabia uses a breakeven price of $4 a barrel as you mentioned, it means it has to produce 212.5 million barrels a day (mbd) to balance its budget. An absolute impossibility.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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