If Saudi Arabia fulfills its promises to increase oil production, Russia will face significant losses and a shortage of funds to finance the criminal war against Ukraine.
Points of attention
- Falling oil prices may lead to significant losses and a shortage of funds for Russia to finance the ongoing war against Ukraine.
- Russia's heavy reliance on oil and gas revenues makes it vulnerable to fluctuations in energy prices, putting its economy at risk.
- Increased oil production by Saudi Arabia could further drive down oil prices, negatively impacting the Russian Federation's economy.
- The Russian state budget and inflationary pressure are expected to increase in the event of a drop in oil prices, presenting tough choices for the government.
- Despite challenges posed by falling oil prices, Russia is likely to persist in funding the war against Ukraine, demonstrating its continued participation in the global energy market.
What is known about the consequences of the drop in world oil prices for the Russian economy
The publication notes that the Saudi authorities are increasingly frustrated by the inability of other exporting countries to coordinate actions to reduce supplies and maintain oil prices at $100 per barrel.
Oil traders emphasize that currently, against this background, Saudi Arabia has decided to increase production in order to take control of part of the market and gain profits even in conditions of falling prices.
Such a strategy could lead to a drop in oil prices and be bad news for Russian President Vladimir Putin. Over the past decade, oil and gas have been the largest single source of income for the Russian state, accounting for up to half of the country's budget, the authors of the material emphasize.
Could lower oil prices lead to the collapse of the Russian economy?
According to Russian energy analyst Mykhailo Krutikhin, Saudi Arabia's decision creates significant risks for the state budget of Russia's aggressor country.
So we have to sit back and wait — stock up on popcorn, the expert predicts.
Krutikhin emphasized that Saudi Arabia is aware that Russia is not fulfilling its own promises to cut production, so the world's largest oil exporter is making its own plans.
Economist and researcher at the Carnegie Endowment for International Peace Oleksandra Prokopenko emphasizes that the risk for the Kremlin is very high at the moment.
At current exchange rates, a $20 drop in oil prices would result in a 1.8 trillion ruble ($20 billion) drop in revenue. This is equivalent to approximately 1 percent of Russia's GDP. The government will face a choice: either cut spending, which is unlikely during the war, or put up with inflationary pressure and suffocatingly high interest rates, Prokopenko predicts.
In turn, Russian dictator Vladimir Putin promised to continue producing oil to support his country's economy.
Everyone has difficulties, and we have our own, but Russia continues to be one of the leading participants in the world energy market, the Kremlin dictator said at an energy forum last week.
According to the authors of the article, even if Saudi Arabia implements its own plans to increase production, Russia is still unlikely to stop the criminal war against Ukraine.
Signs of an imbalance in the economy are growing, but Russia will still be able to continue financing the war for some time. The war will not end because Russia is running out of money, explains Bank of Finland researcher Heli Simola.
