US, WASHINGTON (ORDO NEWS) — Moscow and Riyadh are trying to lower oil prices in order to squeeze American exporters out of the market, writes The Guardian. According to the publication, such an approach of the two countries only leads to a weakening of global interaction, which is especially necessary to combat the crisis of the coronavirus.
Oil has an unpleasant habit of playing a role in global crises. At the beginning of 1973, the global economy celebrated a quarter century of strong growth. By the end of the year, the golden age ended in collapse after the OPEC oil cartel raised oil prices in response to Israel’s Western support in the Doomsday War, The Guardian writes.
A sharp jump in oil prices was a characteristic feature of each subsequent global recession, but not the current one. This time, on the contrary, it was caused by the rapid decline in the cost of a barrel of black gold, unprecedented since the Iraq war in 2003, the newspaper notes.
In this case, the energy price is more a symptom than a cause of the problem. The first rule of economics is that the price of something is determined by the relationship of supply and demand. And now, two of the world’s largest producers – Saudi Arabia and Russia – pump out as much oil as possible with a significant drop in demand, explains The Guardian.
According to the publication, it is expensive for both countries, especially Saudi Arabia, which will have to significantly reduce the budget in order to compensate for the loss of oil revenues. But both Moscow and Riyadh believe that short-term losses are worth it ” to capture a large market share.”
Their goal is the US shale sector. It is growing rapidly, but has large debts and requires that world oil prices be much higher than their current level to ensure their profitability, the article emphasizes.
The price war has not only an economic, but also a geopolitical component. Russia is not only concerned about competition from American oil, but also “ upset ” by the sanctions that Washington imposed against Rosneft because of its trade with Venezuela, The Guardian argues.
In theory, a drop in oil prices should contribute to economic growth. With the cheapening of fuel, the costs of enterprises are reduced, and consumers see that their wages are increasing. But we do not live in “ unusual times, ” the publication said.
The fall in oil prices at the beginning of the automobile season in the United States, as a rule, prompts even more Americans to switch to personal transport. But the Covid-19 pandemic calls into question this development.
Today, British consumers can also fill their car tanks for £ 10 less than a month ago. But people are not going to spend the saved money on visiting a pub or cafe, because they are all closed due to quarantine, The Guardian draws attention.
At the end of last week, the price of oil rose after Donald Trump announced that he would support US producers by increasing US strategic stock. But taking into account the fact that the world economy is facing a decline in production volumes, which was not observed even during the Great Depression, there are serious risks of a further drop in energy costs.
This whole price war undermines the chances of global interaction. This is of particular concern against the backdrop of the crisis caused by the epidemic of coronavirus, the newspaper notes.
In his opinion, OPEC is no longer the force that it once was, and the organization’s attempt to include Russia as a kind of associate member failed. The fact that Saudi Arabia presides over the G20 “only confirms the weakness of international cooperation at a time when it was never so urgently needed.”
From the point of view of Riyadh, opening the valves to the full makes sense, because he believes that he can win the “ downward race ”. Without cooperation with Russia, production restrictions will not work in any case, and Saudi oil is full, and it’s cheap to produce.
Vladimir Putin’s approach “recalls the days of the Cold War.” He is trying to show the US economic power and clearly sends a warning to the Saudis that they need to increase purchases of Russian military equipment, the publication argues.
“But this situation also causes disturbing associations with the 1930s, when the introduction of the Smoot-Hawley tariff in the United States triggered mirror protectionist measures. The policy of “ruin the neighbor for their own well-being” has returned again, ”concludes The Guardian.
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