GZERO Media logo

Russia and Saudi Arabia play a crude game of chicken

Russia and Saudi Arabia play a crude game of chicken

For three years, Russia and Saudi Arabia, the world's two largest oil exporters, had a deal to prop up global crude prices by limiting production. They calculated that by producing fewer barrels, rising prices would make each barrel worth more.

Over the weekend, that deal collapsed when Russia backed out, allegedly because it decided that higher prices were also providing an unexpectedly large boost for the US oil industry, which has expanded its market share by increasing production by nearly 50 percent since the Russia-Saudi (formally, Russia-OPEC) deal began in late 2016. A lot of that increase has come from US shale oil.


Saudi Arabia, eager to show Russia that its market power is not to be ignored, slashed the price at which it sells its own oil, and moved to sharply boost production. The expected flood of new Saudi supply dropped global oil prices by more than 30 percent on Monday, the biggest overnight drop in almost three decades. Stock markets, already wobbly thanks to coronavirus, took a dive.

Now Moscow and Riyadh appear locked in a price war – a crude game of chicken that could last for weeks or even months. Oil markets are reeling because this conflict comes just as the coronavirus clobbers demand for oil as factories close, and as international shipping and air travel slow dramatically. More supply + less demand = price collapse.

Here's how the key players in this oil price drama are looking at this:

Saudi Arabia: Bring it on. If Russia won't play ball, Riyadh is happy to make them suffer lower prices, and if that also makes it unprofitable for American shale oil producers to get their stuff out of the ground, so much the better. By dint of geology, it costs the Saudis less to produce a barrel of oil than other major producers, so they can weather lower prices, at least for a while. But if this goes on too long, government revenues will suffer, and the Crown Prince will have less money to pour into his grand plan to develop the non-oil parts of the Saudi economy.

Russia: That escalated quickly. It's possible that Putin miscalculated by pulling out of the deal, not expecting such a swift and severe Saudi response. Russia can take the price hit for a good while – it has nearly $600 billion in reserves, including a $150 billion rainy day fund, and its budget is far less oil-dependent than it used to be. But a prolonged period of oil at $20-$30 per barrel would inflict some serious pain that Putin, powerful though he is, probably wants to avoid, if only to keep from running down his financial safety cushions too much.

The United States: Good for some, bad for others. On the one hand, low oil prices mean gasoline and other consumer goods get cheaper. On the other, oil companies make up a big chunk of the main stock indices, and those scrappy shale oil producers that have boosted US production in recent years are carrying a lot of corporate debt. If lower prices push them into insolvency, there is a risk of a severe financial contagion – right as the coronavirus also hits the US economy.

Other oil producing countries: This is bad. This is very bad. The price dive is frightening for major exporters like Nigeria and Mexico, which are struggling to find the money to fund big policy promises, and especially for Venezuela and Iran, which already have economic crises (as well as US sanctions) to manage.

Oil importing countries: The best thing at the worst time. If you are India or China or Turkey, all of which depend hugely on oil imports, you love lower oil prices. If only you didn't also have to worry about coronavirus, financial contagion, or wars and migrant crises.

Bottom of the oil well: Much depends on how long the Russia-Saudi fight goes on. It's possible that Saudi Arabia's big weekend move will bring Russia quickly back to the table for a new deal. If not, we could be in for a prolonged price war. That will inflict significant pain even on Saudi Arabia and Russia, but Vladimir Putin and Mohamed bin Salman are not exactly known for their willingness to back down from a fight.

Carbon has a bad rep, but did you know it's a building block of life? As atoms evolved, carbon trapped in CO2 was freed, giving way to the creation of complex molecules that use photosynthesis to convert carbon to food. Soon after, plants, herbivores, and carnivores began populating the earth and the cycle of life began.

Learn more about how carbon created life on Earth in the second episode of Eni's Story of CO2 series.

As we enter the homestretch of the US presidential election — which is set to be the most contentious, and possibly contested, in generations — Americans are also voting on 35 seats up for grabs in a battle for the control of the Senate. The 100-member body is currently held 53-47 by the Republican Party, but many individual races are wide open, and the Democrats are confident they can flip the upper chamber of Congress.

Either way, the result will have a profound impact not only on domestic policy, but also on US foreign relations and other issues with global reach. Here are a few areas where what US senators decide reverberates well beyond American shores.

More Show less

On September 23, GZERO Media — in partnership with Microsoft and Eurasia Group — gathered global experts to discuss global recovery from the coronavirus pandemic in a livestream panel. Our panel for the discussion Crisis Response & Recovery: Reimagining while Rebuilding, included:

  • Brad Smith, President, Microsoft
  • Ian Bremmer, President and Founder, Eurasia Group & GZERO Media
  • Jeh Johnson, Partner, Paul, Weiss, Rifkind, Wharton & Garrison, LLP and former Secretary of Homeland Security.
  • John Frank, Vice President, UN Affairs at Microsoft
  • Susan Glasser, staff writer and Washington columnist, The New Yorker (moderator)

Special appearances by UN Secretary-General António Guterres, European Central Bank chief Christine Lagarde, and comedian/host Trevor Noah.

More Show less

Jon Lieber, who leads Eurasia Group's coverage of political and policy developments in Washington, offers insights on the Supreme Court vacancy:

Will Senate Republicans, who stopped a Supreme Court nomination in 2016, because it was too close to an election, pay a political price for the change in tactics this time around?

Not only do I think they won't pay a political price, I think in many cases, they're going to benefit. Changing the balance of power on the Supreme Court has been a career-long quest for many conservatives and many Republicans. And that's why you've seen so many of them fall in line behind the President's nomination before we even know who it is.

At this point, do Senate Democrats have any hope of stopping President Trump from filling the ninth seat on the Supreme Court?

More Show less

In a special GZERO Media livestream on global response and recovery amid the COVID-19 pandemic, Eurasia Group & GZERO Media president Ian Bremmer discussed the difference between Europe's unified approach to economic stimulus and the deeply divided and political nature of the current conversation in the US. While initial stimulus support was bipartisan, there is little chance of Democrats and Republicans coming together again ahead of the November 3 presidential election. "It's red state versus blue state. President Trump's saying that coronavirus isn't so bad if you take the blue states out. He's president of the blue states, you can't take the blue states out," Bremmer told moderator Susan Glasser of The New Yorker.

UNGA banner

GZEROMEDIA

Subscribe to GZERO Media's Newsletter: Signal

Panel: How will the world recover from COVID-19?

UNGA Livestream