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Moscow will find itself without funds to support its military economy if Saudi Arabia goes ahead with its plans to increase oil production to regain market share.
This was reported by Politico.
Saudi Arabia is increasingly frustrated by the failures of other oil-producing countries to coordinate supply cuts to raise oil prices to around $100 per barrel (currently, the price is about $70).
Traders predict that Saudi Arabia may respond by increasing oil exports to capture a larger market share and generate more profit, even if prices decline.
This strategy could lead to a drop in oil prices and be bad news for Russian leader Vladimir Putin. A possible move by Saudi Arabia poses a “huge risk” to Russia’s budget, as the country is overly dependent on oil revenues. This is just one of several unpredictable factors, such as the presidential elections in the United States.
He also noted that Saudi Arabia “understands perfectly well that Russian companies are not adhering to the production cut requirements, which is why they are developing their own plans.”
Olexandra Prokopenko, an economist and researcher at the Carnegie Endowment for International Peace, agreed that the stakes for the Kremlin are very high.
“At current exchange rates, a $20 drop in oil prices would lead to a loss of 1.8 trillion rubles ($20 billion) in revenue. This is about 1 percent of Russia’s GDP,” she explained.
“The government will be forced to choose between cutting spending—unlikely during wartime—or agreeing to inflationary pressure and very high interest rates,” Prokopenko added.
Russia’s revenues from fossil fuel extraction also increased by 41% in just the first half of this year, according to data from the Russian Ministry of Finance, despite Western sanctions imposed due to the war in Ukraine.
The Saudi Minister of Energy warned that oil prices could fall to $50 per barrel if OPEC+ member countries that violate agreements do not adhere to agreed production limits.
