Business and financial analysis research

Russia-Saudi Arabia Oil Price War


Oil crisis, the U.S. crude oil price fell below $ 20 a barrel, which fell to an 18-year low.

The world's major economies, the Americas, Europe, and Asia, continue to implement various blockade measures to prevent the spread of the epidemic (COVID-19) so the demand for oil has plummeted.  In addition, Saudi Arabia and Russia are determined to launch an oil price war.  Under the double blow, the surplus has caused oil prices to fall below $20 a barrel.

Global oil demand and prices have substantially reduced global fuel consumption due to the new coronavirus (COVID-19) which paralyzing the Chinese economy.  Therefore, based on the consideration of stabilize the global economy and oil prices, Saudi Arabia, which has the largest OPEC production capacity and is also the world ’s first oil country hopes to reduce production with Russia.  However, Russia opposes this oil reduction Plan.

Impact on Countries

United States:

United States is a major producer of shale oil.  Oil prices felling will also affect the price of shale oil in the United States, as well as the price of domestic oil.  However, production cuts will reduce the opportunity for the United States to seize market share, so the United States is in a dilemma position.  Trump spoke, " We are now the No. 1 producer of oil and natural gas anywhere in the world. We are independent, and we do not need Middle East oil."  But this drop in oil has also hit the shale oil industry.  OPEC+ proposes to reduce production and stabilize oil prices; however, Russia is unwilling to cooperate.  Because Russia is worried that the oil market will be seized by the US ’s malicious increase its market share.  The advantages of stabilizing oil prices are dominated by shale oil, so Russia requires that US shale oil also participate in production cuts.  Although the fall in oil prices will also affect the commercial interests of the United States, this is also a way to suppression Russia's recovery.


Russia and Saudi Arabia, the world ’s largest oil reservoir, launched an oil price war. Russia were reluctant to reduce production capacity due to the current global economic demand for oil.  Instead, they announced that they would expand production.  Russia ’s aggressive attack on market share.  This kind of action will hurt others and also itself.  Vicious increase in production capacity has led to overproduction and course the price plunging.  The long-term low oil prices will definitely damage Russia's economic and national interest.

China / Japan / Europe:
The decline in oil prices is good news for consumer countries such as the Euro, China and Japan.  Lower energy expenditures have a positive net profit impact on the economic growth of their own countries.  However, in the current global economy, due to the impact of the epidemic (COVID-19), production capacity and demand both are drop, so the benefited consumption is relatively reduced.

Only Russia and Saudi Arabia reached an agreement to reduce production, and US shale oil has participated in the production cut, then that the oil prices will stop falling and increase from the bottom.  But the key point is that the epidemic of coronavirus (COVID-19) will be quickly suppressed.  The global economy will return to growth pattern, people and enterprises back to normal life and operations. And only by increasing oil demand can oil prices be stabilized.

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