Saudi oil war: Russians can be blamed for this

US, WASHINGTON (ORDO NEWS) — Crown Prince Mohammed bin Salman was not at ease when Russian President Vladimir Putin promptly entered a hall filled with world leaders.

Saudi Arabia faced the most serious diplomatic crisis in its history after the assassination of Jamal Khashoggi a few weeks earlier, and the most likely heir to the throne of the Kingdom of Saudi Arabia, whom many accused of killing this journalist, faced a cold welcome at a G20 meeting.

However, Mr. Putin smiled broadly at the moment when he “gave five” to Prince Mohammed, and then sat next to a smiling Saudi. This meeting in Buenos Aires in November 2018 was a clear sign of a warming relationship between the two authoritarian leaders, and these countries, which for decades have been on opposite sides in the global confrontation, have found common interests – maintaining stable oil prices.

However, this agreement suffered a crushing fiasco last week when two of the world’s major oil producers became embroiled in a war over oil prices, which brought chaos to global markets already affected by the ubiquitous spread of coronavirus.

Donald Trump was drawn into this maelstrom because, ignoring the position of his critics, he supported Crown Prince Muhammad after the assassination of Khashoggi, and also baffled many with his constant praise for the leadership of Mr. Putin.

Just as the President of the United States was preparing for an election battle amid the outbreak of Covid-19, the Russian-Saudi war in the field of crude oil threatened the growing American shale industry, it hit hard large American oil companies, and also increased pressure on collapsing stock markets.

“We are in a hopeless situation – this is a conflict in which there are three big players who have gathered in the same room and say to each other:“ If you attack that guy, you will attack me, so I will attack you, ” “Said Michael Stephens, a researcher at the Royal United Services Institute.” This is a strange triangle in which neither side is ready to give in, and it will hurt everyone.”

The price war began after Russia rejected the request of Saudi Arabia to further reduce oil production to curb the fall in prices during the spread of the coronavirus epidemic, and thus ended a three-year cooperation between them in the field of crude oil production.

Riyadh, the de facto leader of OPEC, quickly reacted, and its response was the most aggressive action in the oil industry in the last few decades – he announced his readiness to bring an additional 2.6 million barrels of oil per day to the market at a price of huge discount. After that, oil prices collapsed by more than 30%.

The goal for Moscow is the American shale industry, which increased oil production by 4.5 million barrels per day since Crown Prince Mohammed and Mr. Putin agreed in 2016 to cooperate in reducing oil production, which led to reducing the share of Russia and Saudi Arabia in the global market.

Saudi Arabia, the world’s largest oil exporter, assumes that an increase in production will mitigate the financial consequences of lower prices and increase market share. In addition, this will allow either to return Moscow to the negotiating table, or will provide an opportunity to reformat the energy industry.

“Taking into account all the global criticism and attacks due to the killing of Khashoggi, it seems to me that this attitude has been established:“ We get nothing from being responsible players in the oil field, ”and as a result, everyone began to be guided by our own interests. Why are we should they sit back and sacrifice their interests just like that? The whole charm is that the Russians can be blamed for this. You have a legitimate answer: “Talk to Vladimir, he started all this,” said one Saudi close to the royal court.

And this person also added: in the interests of Saudi Arabia, to ensure that this situation continues, and use this time to make a change in this industry.

“Get rid of weak players in the shale oil industry and send a message to all Tesla refineries in the world, as well as to supporters of alternative energy – a lot can change in the oil industry as a whole,” this person noted.

However, such actions appear to enhance the image of Crown Prince Mohammed as an impulsive leader. It is also a high-stakes game for the oil-dependent Saudi kingdom. Such a move, together with the effects of coronavirus, risks a powerful blow to the economy for the second time in six years, as well as interfering with the Crown Prince’s own plans to diversify the economy.

And the signals coming from Moscow indicate that she is ready for a long game. A spokesman for Mr. Putin said the Russian leader “has no plans” to negotiate with Crown Prince Mohammed or King Salman.

“As for the Saudis, they believe that all countries that tried to wage a serious price war with this kingdom ultimately lost. However, we are faced with an unprecedented situation – with the growth of the oil shale industry and the spread of Covid-19, ”said Amy Myers Jaffe, research fellow at the Council on Foreign Relations. “There is no certainty that low prices will help renew demand.”

Collateral damage will be felt in the space from Baghdad to Texas.

Ten years ago, the United States would clearly have benefited from low oil prices, but its rapid entry into the number of major oil producers has changed such estimates. States such as Texas, North Dakota and Pennsylvania, benefiting from the shale oil boom, will be among the victims of a price war that aims not just to cut prices, but to crash them.

The Kremlin has long believed that Washington’s sanctions against Russia are partly motivated by the desire to create more space for shale oil. “An increase in the share of American oil in the global market is often achieved not so much by economic as by political methods, by crowding out key players and imposing their products,” said Igor Sechin, chief executive officer of Rosneft, in October.

While some people in Saudi Arabia are confident that their kingdom fatally undermined the economy of the Soviet Union in 1986, other observers fear that the Saudi crown prince may have gone too far.

“You annoy Russia, but also oppose your only friend (Trump) – this is complete madness,” said one of the analysts working in the Persian Gulf. “As far as I can see, the Saudis have a depressed mood.”

Oil traders have a wait-and-see attitude and are trying to understand how the two most powerful leaders in the world can pass back while preserving their face, if they are capable of it at all. “Even if the price war ends, it is very likely that negative emotions will persist for a long time. I do not see the possibility of a quick reconciliation, ”said Ms. Jaff.

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The article is written and prepared by our foreign editors from different countries around the world – material edited and published by Ordo News staff in our US newsroom press.