It could be a multi-part, online action thriller of the type so many of us have turned to in these days of social isolation. But it is real life — “it” is the oil price war between Russia and Saudi Arabia, which began four weeks ago. Each country is seeking to preserve a dominant market share in what is essentially a game of bluff.
Like any particularly watchable television, the main characters are the backbone of the series: Russian President Vladimir PutinVladimir Vladimirovich PutinPutin's party wins big majority in Russian parliamentary elections Putin's party expected to keep control of lower house amid fraud complaints Clinton lawyer's indictment reveals 'bag of tricks' MORE versus Saudi Crown Prince Mohammad bin Salman, aka MbS. President TrumpDonald TrumpTrump takes shot at new GOP candidate in Ohio over Cleveland nickname GOP political operatives indicted over illegal campaign contribution from Russian national in 2016 On The Money — Dems dare GOP to vote for shutdown, default MORE has yet to play a leading role, but this is likely to change this week, probably as a consequence of a further dip in oil prices despite last week’s partial recovery.
The price of oil was weak anyway, even before the coronavirus, a result of increased supplies, including U.S. shale oil and a perceptible shift away from oil to other more green energy sources. The global public health crisis has been a body blow to the world economy — and people not working and driving means less demand for oil. Current predictions are that instead of around 100 million barrels per day, this year the world will need only 80 million or even 70 million.
The price war is about who can survive longest while selling oil cheaply — so cheaply that it is barely profitable. Saudi oil has some of the lowest production costs in the world, but the kingdom needs a high price to meet its budget requirements, which is less of a problem for Russia. Riyadh has pruned budgets but this also means delaying MbS’s signature Vision 2030 program for economic transformation.
This past weekend, there were inputs to the drama’s plot line. A virtual meeting initially planned for today to discuss — and even, perhaps, agree to — production cutbacks has been postponed until April 9. But there is no hint of goodwill.
After President Putin blamed Saudi Arabia for the price war on Friday, the kingdom’s foreign minister, Prince Faisal bin Farhan al-Saud, described the Russian leader’s comments as being “fully devoid of truth.” The next day the Saudi energy minister, Prince Abdulaziz bin Salman al-Saud, said comments by his Russian counterpart, Alexander Novak, were “categorically false and contrary to fact.”
On the sidelines, President Trump said on Saturday that he had been “against [Saudi-led] OPEC all my life.” And on the possibility of tariffs on Russian and Saudi oil imports, to protect American oil producers: “I’ll do what I have to do.” At best, his comments are ambiguous, suggesting perhaps that he is exasperated with the position of both Moscow and Riyadh.
As of the time of this writing, we are waiting for Russia’s response to Riyadh’s verbal insults.
Television drama does not lend itself to policy dilemmas — but avid followers of this week’s action should perhaps remember that an American policy dream of the past few decades is to be energy independent. It is an aspiration born of painful experience.