Crude Economics
Saudis Fighting Russia for Europe’s Oil Market

Saudi Arabia is becoming a nightmare for Russia. First, the Saudis elected to abdicate their role as global oil swing producers, choosing not to cut production (and convincing the rest of OPEC to follow their lead) in the face of plunging crude prices. That decision consigned oil producers around the world to a period of prolonged bargain pricing, which has sent budget deficits spiraling in petrostates like Saudi Arabia and—you guessed it—Russia. And it doesn’t stop there. Reuters reports on Riyadh’s latest economic strike against Russia:

Russia has for years been muscling in on Asian markets where Saudi Arabia was once the unchallenged dominant supplier. But now Riyadh is retaliating in Moscow’s backyard of Europe with aggressive price discounting.

Trading sources told Reuters that majors such as Exxon, Shell, Total and Eni have been all buying more Saudi oil for their refineries in Western Europe and the Mediterranean in the past few months at the expense of Russian oil.

Riyadh’s strategy has been predicated on a belief that market share is more important than a robust oil price, and that’s perhaps being vindicated in Europe, where Saudi supplies are starting to edge out Russian crude. Putin has to be feeling the pressure as Western sanctions prevent him from investing in the kinds of new projects necessary to keep Russian oil production up in the medium-term future, even while low prices deplete a Russian national budget that has become very dependent on revenues generated by hydrocarbon sales. And now, between Saudi discounting and the continent’s recent push to diversify away from Gazprom supplies after the conflict in Ukraine, Russia is losing its grip on its most important customer base: the European market.

This continental clash is only going to intensify when Iranian oil exports start to come back online, pending the lifting of Western sanctions. In the meantime, Russian and Saudi energy officials have scheduled a meeting next month to discuss the current market climate. Rest assured they’ll have plenty to talk about.

Features Icon
show comments
© The American Interest LLC 2005-2017 About Us Masthead Submissions Advertise Customer Service