Saudi Arabia’s plan to increase crude production could seriously undercut Russia’s fossil fuel revenues needed for its war against Ukraine, Politico reported on Oct. 3.
Riyadh plans to abandon its unofficial price target of $100 per barrel and drive up production to ensure its dominant position in the global market, even at the cost of dropping oil prices, the Financial Times reported last week, citing its sources.
Russia is greatly reliant on oil and gas profits, which have represented almost one-third of the country’s total federal revenue in 2023 and 42% in 2022. Fossil fuel profits thus play a key role in funding Russia’s expensive war machine.
Alexandra Prokopenko, an economist and fellow with the Carnegie Endowment for International Peace, told Politico that a $20 fall in oil prices at current exchange rates would cause Russia a loss of 1.8 trillion rubles ($20 billion) in revenue, which is roughly 1% of the country’s gross domestic product.
This would force the country to either cut funding, which is an unlikely step during the full-scale war, or accept growing inflation and significantly higher interest rates, the expert concluded.
Saudi Arabia has previously sought to convince other OPEC+ members to cut production to maintain higher prices. However, the lack of coordination and unilateral hikes by countries like Russia reportedly frustrated the Gulf country and convinced it to reverse course.
In September, the oil price briefly dropped below $70 per barrel, the lowest since December 2021.
Riyadh aims to resume the scale of its production in December even at the cost of prolonged drop in prices, the Financial Times reported.
