Saudi Arabia is set to ramp up oil production in a blow to Russian President Vladimir Putin‘s war machine and his invasion of Ukraine.
Saudi Arabia is prepared to abandon its $100-a-barrel crude oil price target as it moves to increase output, signaling its acceptance of lower prices, according to the Financial Times.
This decision comes despite earlier production cuts by OPEC+ members, which sought to keep prices high. Brent crude prices dipped below $70 earlier this month, the lowest since December 2021.
Despite this, officials plan to boost production starting December 1, potentially extending a period of reduced prices. This marks a shift from Saudi Arabia’s previous focus on price stabilization.
Russian President Vladimir Putin attends the Orthodox Easter service at the Cathedral of Christ the Saviour in Moscow, Russia, Sunday, May 5, 2024.
Pavel Bednyakov/Sputnik, Kremlin Pool Photo via AP)
Saudi Arabia’s ramp-up in oil production, especially if paired with lowered prices, is likely to hurt the Russian economy.
Experts told Newsweek that Saudi Arabia’s move would “strain” Russia’s budget as it continues its invasion of Ukraine.
Russia relies heavily on oil revenues to fund its economy and military engagements in Ukraine.
Orysia Lutsevych, Head of the Ukraine Forum at Chatham House, told Newsweek: “Oil and gas remain one of the main sources of Russia’s budget revenue.
“To date, despite the oil price cap imposed by the EU, Russia managed to increase those sources of revenue, which is key to financing its war in Ukraine. A decrease in oil price, if substantial, would add additional strain on the Russian budget. Sanctions make access to parts more expensive to Russia, so limiting income from oil will put the pressure on the system.”
As Saudi Arabia increases supply, global oil prices may drop, pressuring Russia, especially amid sanctions and its ongoing conflict in Ukraine. Russia’s economic stability could weaken due to reduced revenues from oil, which funds key government sectors, including military efforts. The intensifying competition in oil markets could further erode Russia’s market share, challenging its financial resilience.
Saudi Arabia is facing increased pressure on its oil market strategy as supply from non-OPEC producers like the U.S. rises and demand in China weakens.
Despite Brent crude averaging $73 a barrel in September amid regional conflict, Saudi Arabia is shifting priorities.
Though it needs prices near $100 per barrel to balance its budget and fund major projects, the kingdom is no longer willing to lose market share. It plans to raise production gradually while relying on foreign reserves and sovereign debt to manage lower prices, signaling a strategic shift to preserve market dominance.
Compliance among OPEC members remains a concern, with Saudi Arabia considering faster production increases if members like Iraq and Kazakhstan fail to meet quotas.
The move could cripple Russia’s economy as competition in the oil market could erode Russia’s market share.
On September 5, 2024, OPEC+ members, including Saudi Arabia, Russia, Iraq, the UAE, and others, held a virtual meeting emphasizing their commitment to adhere to voluntary production cuts.
Iraq and Kazakhstan, which had overproduced since January 2024, reaffirmed their dedication to the agreement and submitted compensation schedules to the OPEC Secretariat.
This follows additional voluntary cuts announced in April and November 2023, as part of the group’s ongoing efforts to maintain stability in global oil markets. The collective goal is to ensure compliance with these production adjustments.
Russia’s oil infrastructure has been repeatedly targeted by Ukrainian forces.
In August an oil depot in southern Russia was hit in the latest apparent Ukrainian drone strike on the country’s energy infrastructure.
Do you have a story we should be covering? Do you have any questions about this article? Contact LiveNews@newsweek.com
