Saudi Arabia’s plans to increase oil production and regain market share could leave Moscow without petro dollars for its war coffers, reports Politico.
The world’s third-highest crude oil producer “is increasingly frustrated” that other peers in the industry cannot agree on reducing production to raise oil prices to around $100 per barrel (currently about $70).
Riyadh may start increasing oil exports to capture a larger market share and earn more, even if oil prices fall, traders believe.
“That strategy could sink oil prices and spell bad news for Russian President Vladimir Putin,” Politico reported.
Over the past decade, oil and gas have been Russia’s main cash cow, accounting for up to half of its income.
“The government would face a choice of either reducing spending – unlikely during a war or accepting inflationary pressure and stiflingly high interest rates,” said Alexandra Prokopenko, an economist and fellow with the Carnegie Endowment for International Peace.
At current exchange rates, a $20 drop in oil prices would lead to a loss of 1.8 trillion rubles ($20 billion) in revenue for the Kremlin. This is about 1 percent of Russia’s economic output, Prokopenko added.
Earlier, Yuriy Gorodnichenko, professor of economics at the department of economics at the University of California in Berkeley, and adviser to the chairman of Ukraine’s central bank, Andriy Pyshnyy, believes Russia is highly dependent on oil revenues. If something happens to this resource, Russians will face extremely difficult conditions, as they are cut off from external markets.
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