US, WASHINGTON (ORDO NEWS) — Russian President Vladimir Putin achieved a big victory on Sunday, and this happened at a time when the oil-producing countries, as part of the OPEC + deal, agreed to limit the supply of oil to the world market.
The main result – Putin showed Saudi Arabia and the whole world that he is a very influential person, “the creator of kings,” and at the same time he earned the gratitude of America.
As already mentioned, the deal envisages a reduction in oil supplies by almost 10 million barrels per day, starting in May. Its participants hope that this will help stabilize prices, and then raise them up from the current low levels – $ 23 per barrel (WTI grade oil) and $ 32 per barrel (Brent grade oil). Russia and Saudi Arabia advocate higher prices because they need to maximize oil revenues to support their government-funded programs.
The United States is seeking a price increase to strengthen the position of representatives of the shale industry, who have a higher breakeven than foreign competitors, who mainly produce oil in the traditional way.
On paper, this deal looks as if everyone is equally benefiting from it. This is actually not the case. Putin in this case was the main winner. First of all, Russia, most likely, will not comply with its production restrictions. Putin can gain a lot and will lose very little if the agreed level of reduction is exceeded.
Russia can invest every additional dollar received in the outdated infrastructure of social services, as well as in its armed forces. Given the global demands for low oil prices, Putin will assume in his game that the world will blindly glance at any minor violation of the rules – it should be noted that this is exactly what Russia did last year.
Russia’s geopolitical victory goes even further. Putin’s power and his influence in the world are largely based on his ability to dominate the global oil export market – if not through supplies, then through control. Putin is constantly and most decisively trying to prove that it is he who determines the situation in the market, not Saudi Arabia and the United States.
Putin’s political advantage in this deal is that he is the global oil boss. As Putin is trying to extend his influence to Riyadh, this deal will strengthen his ability to impose on Crown Prince Mohammed bin Salman an oil strategy that is beneficial to Russia.
Putin also smiles about the two thank-you notes he received from President Trump over the past 24 hours. And he smiles in connection with the Trump agreement with Mexico, which does not fit the slogan “America First”, and which provides for a reduction in US production to compensate for a certain amount of Mexico’s cuts.
At the same time, the Russian leader may be grateful for another reason: the decline in oil demand caused by the coronavirus is expected to continue for several more months.
According to Trump, this deal will save jobs in the US energy sector, but this is doubtful. It is not able to significantly reduce the pressure on the shale industry – namely, it fears Putin because of its ability to limit the price of oil produced in the usual way. However, despite the deal, oil prices will have to nearly double in order for the shale industry to break even.
In short, Trump’s gratitude to Putin may have been somewhat inappropriate.
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