Russia will be hurt if the Saudis crash oil prices – Politico
3 October 2024 16:44
Russia may be left without funds to maintain its military economy if Saudi Arabia implements plans to increase oil production. This is stated in a Politico article, "Komersant Ukrainian" reports.
Riyadh is growing increasingly frustrated with the inability of other oil-producing nations to coordinate supply cuts to boost oil prices to around $100 a barrel – up from the current $70. Oil traders argue that Saudi Arabia is now poised to respond by demonstrating its strength and turning the tables on smaller producers by increasing its own oil exports to capture market share and profits even if prices fall.
This strategy could lead to a drop in oil prices and be bad news for Russia. After all, oil and gas has been the largest single source of revenue for the Russian state over the past decade, accounting for up to half of the budget. Saudi Arabia is well aware that Russian companies do not comply with the requirements to reduce production. Therefore, it is developing its own plans.
Experts say that a $20 drop in oil prices will lead to a $20 billion drop in Russia’s revenues. This is equivalent to about 1 per cent of Russia’s GDP. The Russian government would then face a choice: either cut spending, which is unlikely during a time of war, or accept inflationary pressures and stiflingly high interest rates.
Russia, along with countries such as Kazakhstan and Iraq, is accused of supplying more oil than agreed within OPEC. Moscow has consistently exceeded its voluntary quota, which currently stands at 8.98 million barrels per day, despite repeated promises to bring production in line with the target.
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Russia’s revenues from fossil fuels also increased by 41% in the first half of this year alone, according to the Russian Ministry of Finance, despite Western sanctions imposed over the war in Ukraine.
In addition, Russia’s state-run TASS news agency reported on Thursday that the state is considering a new strategy to maintain oil production at 540 million tonnes a year through 2050 – in open opposition to efforts to cut production to combat climate change.
Russia has created a “shadow fleet” of ageing vessels to transport its oil around the $60 per barrel price cap set by the G7 countries, and circumventing these restrictions has earned the Kremlin nearly $25 billion since the start of the full-scale invasion.
The loophole allows intermediaries in countries such as Turkey, China and India to refine Russian oil into petrol and diesel before selling it elsewhere – exempting the product from sanctions. POLITICO claims that Western countries spent $2 billion on this relabelled fuel in the first half of 2024, generating enough tax revenue for the Russian state to recruit an additional 6,200 soldiers a month to fight in Ukraine.
Nevertheless, even if Saudi Arabia makes its move, it is unlikely that the financially strapped Kremlin will back down in its war against Ukraine – despite the fact that the national budget is designed to expect oil sales at around $70 per barrel. Russia will still be able to finance the war for a certain amount of time, and for a long time to come.
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