Riyadh’s Oil Ultimatum: How Saudi Arabia Can Destroy Russia’s Economy
16 April 2025 09:08
The OPEC countries have decided to increase oil production, and if Saudi Arabia changes its current strategy and joins this policy, the market expects a huge drop in prices. This is stated in the article “Saudi Arabia’s next step could hit oil prices hard” by OilPrice.com.
OPEC decided not to restrain itself
According to the publication, last week, eight OPEC countries announced plans to accelerate the gradual lifting of voluntary oil production restrictions, increasing production by 411,000 barrels per day in May. The announcement of the accelerated lifting of restrictions comes at the same time as the US President imposed new tariffs, which deepens the turmoil in the oil markets. As of 8:36 a.m. Kyiv time, WTI was trading at $60.96 per barrel, and Brent at $64.29.
This decision by OPEC confirms previous rumors that Saudi Arabia may abandon its traditional role as OPEC’s balancing producer in protest against violators of the production cuts, including Kazakhstan, the United Arab Emirates and Iraq.
Back in September last year, the Financial Times reported that Saudi Arabia was ready to abandon its unofficial target oil price of $100 per barrel and increase production. This effectively signals its readiness for a prolonged period of lower oil prices.
Production cuts at the expense of Saudi Arabia
Currently, Saudi Arabia accounts for 2 million barrels per day of the total production cut of 2.8 million barrels from OPEC members and 3.15 million from OPEC as a whole. In fact, Saudi Arabia’s contribution is twice that of the entire group, with only the Kingdom and Kuwait currently cutting production by double-digit percentages. In fact, much of the production cuts by other OPEC members are not voluntary, but rather reflect their inability to comply with their quotas.
However, the increase in oil supply on the markets has its own dimension for the largest OPEC producer. According to the IMF, Saudi Arabia, the largest economy in the Gulf Cooperation Council, needs an oil price of $96.20 per barrel to balance its budget. This is largely due to the ambitious Vision 2030 program of Crown Prince Mohammed bin Salman.
The situation is complicated by the fact that over the past few years, this oil-rich country has taken the lion’s share of OPEC production cuts. Currently, the Kingdom produces 8.9 million barrels per day, the lowest level since 2011. Thus, Saudi Arabia sells less oil at lower prices, which exacerbates the revenue shortfall.
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Changing strategy
Despite this, the Saudis can still afford to inflict some pain on the oil markets. Saudi Arabia can simply slow down the Vision 2030 economic plan, turning it into, for example, Vision 2040 or even Vision 2050.
In addition, OilPrice writes, Saudi Arabia has enough alternative financing options to survive a period of lower prices, including the use of foreign exchange reserves or the issuance of sovereign debt. In addition, the kingdom can take advantage of the situation with Trump’s tariffs and benefit by offering the US good trade deals. It is also going to get rid of its dependence on oil and diversify its mineral production.
So, if the oil markets refuse to cooperate and continue to offer to reduce production mainly at the expense of the Saudis, they are ready to change their strategy. Today, nothing will prevent Saudi Arabia from joining the production fever and throwing as much oil on the market as possible.
Whether this will happen will be seen in the near future, when OPEC increases production as planned, or does not do so, listening to the Saudis. And if production does increase, Saudi Arabia will most likely do so as well.
Then there will be a huge supply of oil on the market, not provoked by any demand, because Trump’s trade wars are reducing it. This will lead to another wave of falling prices.
Russia is already hurting
Ukraine is interested in this topic, of course, in the context of Russia and its economy. It is well known that Russia is critically dependent on the export of its energy resources. First of all, on oil exports. In 2024, the federal budget revenues from oil sales amounted to 9.19 trillion rubles (approximately $89.4 billion). Total budget revenues for this period amounted to 36.71 trillion rubles. Thus, the share of oil revenues in the total structure of Russian budget revenues in 2024 was approximately 25%
This indicates that, despite international sanctions and attempts to diversify revenue sources, oil remains a key source of financing for the Russian budget.
Russian Urals oil is traditionally sold at a lower price than Brent and WTI, and it is also subject to additional factors that raw materials from other countries do not experience, namely Western sanctions. However, during all three years of the full-scale war with Ukraine, Russia has been successfully selling its oil – its main buyers today are China and India.
The federal budget of the Russian Federation for 2025 included an oil price of $70. Meanwhile, due to the collapse in the global oil market caused by Donald Trump ‘s trade war and OPEC’s decision to further increase production, the price of Russian Urals oil, according to the Ministry of Finance, was $59 per barrel on April 14.
The critical price for Russia is $45
So far, market analysts’ forecasts do not promise Russia any serious problems related to the price of oil, as it still has a very large backlash for sales. According to economic expert Oleg Pendzin, even a price of $50 per barrel is still acceptable for Russia.
“Currently, the direct cost of Russian oil production is about $37-38 per barrel. This is the direct cost. The critical figure for Russia is the sales price of $45,”
– the economist explained exclusively for .
So the more likely way to hurt Russia over oil is still to increase sanctions, including secondary sanctions against its buyers. The point of this step is to make it physically impossible for Russia to sell large volumes of oil and thus receive funds to continue its aggressive war of aggression.
However, back during his election campaign, after making statements about ending the war in 24 hours or 100 days, Donald Trump made a very realistic statement. He said that in order for Russia to lose the ability to fight, it would be enough to simply collapse oil prices. And he seems to be going to do that if Russia does not make concessions. Whether Trump realizes it or not, this is exactly what is happening now.
The Russian economy is already slowing down significantly at $57 per barrel of oil, the industry is stagnating, and recession looks like a very real prospect.
So, if OPEC increases production, and if Saudi Arabia does the same, the figure of $45 per barrel of Russian oil no longer looks fantastic. It will probably be much lower. And then Russia will be in big trouble.
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