The DEFCON Warning System

Ongoing Geointel and Analysis in the theater of nuclear war. Established 1984

The Oil Price Crash: Bad News for Putin’s Ambitions in the Middle East

Russia’s refusal to reach an agreement with Saudi Arabia on global oil quotas could ultimately have a disastrous impact on the Kremlin’s long-term ambitions of extending its influence in the Middle East.

Last week’s dramatic fall in the value of global stock markets was prompted, in part, by Moscow’s decision at the end of last week to end its cooperation with the Saudis to agree to new oil production targets, a measure designed to maintain global oil prices at a sustainable level.

The Saudi response, to launch an oil price-war against Moscow, was clearly not the outcome the Russians had been anticipating.

Thus, instead of guaranteeing Russia’s market share in the global oil market, which had been Moscow’s primary objective at last week’s meeting of OPEC and non-OPEC producers in Vienna, the Russians now find themselves involved in a bitter price war with Saudi Arabia, the world’s second-largest oil producer and largest oil exporter.

The consequences of the fall-out between Moscow and Riyadh could have a profound impact not only on the Russian economy, but also on Russian President Vladimir Putin’s wider ambitions to promote Russian influence throughout the globe, especially in the Middle East.

The Russian economy is heavily dependent on revenues from the country’s vast energy resources. But a combination of increasingly effective US sanctions, as well as the general slowdown in the global economy caused by the coronavirus epidemic, has resulted in dramatic falls in the value of the rouble, with Moscow’s finances now coming under increased pressure as a result of Saudi Arabia’s decision to launch an oil war against Russia.

The primary motivation behind the Saudi move is to protect its own share of the global oil market, which is under threat from a combination of softening demand and the renewed strength of the American oil industry. Because the Saudis enjoy low oil production costs of around $6-7 a barrel, they are able to cope with lower oil prices, while countries like Russia, which have much higher extraction costs, need global prices to be at least $50 a barrel to make a profit. Thus the Saudi price cut, which saw oil prices fall to around $31 a barrel, will hit the Russian economy hard.

Read more at The Gatestone Institute

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Ongoing Geointel and Analysis in the theater of nuclear war.

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