Saudi Arabia could plunge the Russian economy into crisis by flooding the oil market and sending oil prices crashing. According to Business Insider, the kingdom has suggested that crude prices could fall to as low as $50 a barrel.
This would hurt Russia, which relies heavily on oil revenues to fund its war in Ukraine. Russia already sells its oil at discounted prices and faces high production costs, making it vulnerable to a low-price environment.
Saudi Arabia, OPEC’s de facto leader, had previously advocated for higher oil prices. But with global crude prices hovering below $80, that strategy has likely failed. Sources told the Financial Times that Riyadh is exasperated and is now considering changing its strategy by increasing production by December.
Things could go badly if Saudi Arabia’s supply surge sparks an oil price war between Russia and the kingdom, as it did in 2020. Such a war could hurt Russia, as it has limited foreign exchange reserves and relies on oil revenues for its budget.
With higher oil extraction costs than Saudi Arabia, Russia would be ill-prepared to deal with a price crash. A confrontation with Saudi Arabia could worsen its financial situation and force it to step up its military efforts in Ukraine.
(MH with Insaf A – Source: Business Insider/Picture: Unsplash)
