The Organization of Petroleum Exporting Countries (OPEC) has long been a partnership of compromise, yet Monday’s oil price plummet indicates Russia has finally had enough. In order to mitigate oversupply and rebalance the global markets Saudi Arabia called for production cuts, to which Rosneft, Russia’s state-owned oil company, has refused to engage with. Calling it “masochism”, Rosneft head Igor Sechin argues that with every production cut Russia is forced to do, portions of market share simply return to American shale oil. However this rapid increase in Russian production has led the value of the Russian Ruble to plummet, with the currency hitting its lowest level in more than four years on Tuesday. However, what is perhaps most concerning is the promptness and aggressiveness of the Saudi Arabian response. Saudi Arabian Aramco vowed on Tuesday to produce 12.3 million barrels of oil per day in April, exceeding company capacity by 300,000 barrels. In a global sense this abundance of oil with unwavering demand has already exemplified the rapid decline in oil prices. Russia chose to compete over compromise, leaving not only the Saudi Arabian market harmed but also the global oil economy. Effects of this price war are seen with the value of US crude oil plummeting 26%, the worst value since 1991, resulting in US shale companies to cut production.
Nevertheless, it seems as though this response from Russia stems from the coercive sanctions policy that America’s booming economy has enabled. Three weeks ago Donald Trump announced sanctions against a subsidiary of Rosneft in response for its support for the Venezuelan Maduro Regime, leading Russian officials and Russian oil to become increasingly unstable. Yet amid all of this loss Igor Sechin seems to have benefited. This conflict has allowed for nationalist Russian rhetoric to popularize, with the intention to penalize the United States regardless of who gets caught in the crossfire. The United States and Russia relationship has been an immensely fragile one and the new OPEC recommendations for production cuts has simply opened the window of opportunity for influential, nationalist officials such as Sechin.
The impact of such oversupply goes beyond the microeconomic lens and holds the potential to devastate global economies. Considering the recent US-China trade war along with COVID-19 impacting imports and exports, the United States remains an extremely vulnerable actor. On the other hand, Russia is relatively well positioned to withstand the impact of falling oil prices with reserved funds in place, however can severely jeopardize long term economic stability. It is imperative to understand that in order to preserve the oil industry as a whole the convenient and compromising nature of OPEC must be restored, otherwise a prolonged war of attenuation could have devastating economic consequences for all involved.