Saudi Arabia has dared to undermine the oil market and hurt Russia very much
1 May 10:20
Saudi Arabia is signaling a fundamental change in its oil policy, telling allies and industry experts that it is ready to accept a prolonged period of low oil prices instead of further production cuts. According to sources familiar with the situation, the kingdom no longer seeks to maintain high prices by reducing supply, as it has done for the past five years as leader of the OPEC group. This was reported by "Komersant Ukrainian" with reference to Reuters.
This change in strategy could mean a shift to increasing production and expanding Saudi Arabia’s market share. This is in stark contrast to the previous policy of balancing the market through deep cuts that kept prices at the level necessary to ensure export revenues for many oil-producing countries.
The reason for Riyadh’s dissatisfaction was the excess of production quotas by Kazakhstan and Iraq. After several months of pressure on OPEC members to comply with the established restrictions, disappointed Saudi Arabia is changing course. In May, the kingdom already insisted on a larger-than-planned increase in production by the OPEC group, which led to a drop in oil prices below $60 per barrel, the lowest in four years.
Despite the fact that Saudi Arabia needs prices above $90 per barrel to balance its budget (according to the IMF), Saudi officials have been telling partners in recent weeks that the kingdom is ready to live with lower prices by increasing borrowing and cutting spending.
“The Saudis are ready for lower prices and may need to cut back on some large projects,”
– one of the sources said.
Experts are considering several theories for the change in Saudi strategy: from punishing OPEC members for exceeding quotas to fighting for market share after losing ground to non-OPEC producers such as the United States and Guyana. Also, increasing production could be a step towards US President Donald Trump, who has repeatedly called on OPEC to increase production to reduce gasoline prices in the US.
The decision in OPEC
The OPEC group, which includes the Organization of the Petroleum Exporting Countries and allies, including Russia, may decide to accelerate production increases again in June. Currently, OPEC is cutting production by more than 5 million barrels, or 5% of global supply, with Saudi Arabia contributing two-fifths of this amount.
Analysts note that although it is not yet a “price war,” OPEC has already decided to triple its planned production increase to 411,000 barrels per day. This still leaves the group with more than 5 million barrels of restrictions that it intends to lift by the end of 2026.
“We still call this a ‘managed’ lifting of cuts rather than a fight for market share,”
– said UBS analyst Giovanni Staunovo.
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A blow to the Russian economy
For Russia, which is the second largest exporter in the OPEC group after Saudi Arabia, this development could have catastrophic consequences. Although the Russian side is aware of Riyadh’s plans to accelerate production growth, Moscow prefers a slower increase, as its budget is balanced at a price of about $70 per barrel.
A drop in oil prices could lead to a significant reduction in Russian budget revenues, especially given that prices for Russian oil, which is already sold at a discount due to sanctions, could fall below $50 per barrel. Such prices not only put pressure on the Russian budget, but also reduce the Kremlin’s ability to finance military operations and maintain social stability.
Russia is already hurting
It is well known that Russia is critically dependent on its energy exports. First of all, on oil exports. In 2024, the federal budget revenues from oil sales amounted to 9.19 trillion rubles (approximately $89.4 billion). Total budget revenues for this period amounted to 36.71 trillion rubles. Thus, the share of oil revenues in the total structure of Russian budget revenues in 2024 was approximately 25%
This indicates that, despite international sanctions and attempts to diversify revenue sources, oil remains a key source of financing for the Russian budget.
Russian Urals oil is traditionally sold at a lower price than Brent and WTI, and it is also subject to additional factors that raw materials from other countries do not experience, namely Western sanctions. However, during all three years of the full-scale war with Ukraine, Russia has been successfully selling its oil – its main buyers today are China and India.
The federal budget of the Russian Federation for 2025 included an oil price of $70. Meanwhile, due to the collapse in the global oil market caused by Donald Trump ‘s trade war and OPEC’s decision to further increase production, the price of Russian Urals oil, according to the Ministry of Finance, was $58 per barrel on April 29.
So far, market analysts’ forecasts do not promise Russia any serious problems related to the price of oil, as it still has a very large backlash for sales. According to economic expert Oleg Pendzin, even a price of $50 per barrel is still acceptable for Russia.
“Currently, the direct cost of Russian oil production is about $37-38 per barrel. This is the direct cost. The critical figure for Russia is the sales price of $45,”
– the economist explained exclusively for .
So the more likely way to hurt Russia over oil is still to increase sanctions, including secondary sanctions against its buyers. The point of this step is to make it physically impossible for Russia to sell large volumes of oil and thus receive funds to continue its aggressive war of aggression.
However, back during his election campaign, after making statements about ending the war in 24 hours or 100 days, Donald Trump made a very realistic statement. He said that in order for Russia to lose the ability to fight, it would be enough to simply collapse oil prices. And he seems to be going to do that if Russia does not make concessions. Whether Trump realizes it or not, this is exactly the scenario that is happening now.
The Russian economy is already slowing down significantly at current oil prices, the industry is stagnating, and recession looks like a very real prospect.
And if the downward trend in prices continues, the figure of $45 per barrel does not look so fantastic.
