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Sending oil prices down unprofitable for Saudi Arabia, Russia believes

April 18, 2014, 15:19 UTC+3 Alexandrova Lyudmila
© AP Photo/Richard Vogel

MOSCOW, April 18. /ITAR-TASS/. Can Saudi Arabia, in a bid to meet demands of the United States that wants to punish Russia for the reunification with Crimea, send down oil prices by increasing the production volume? This question has been actively discussed in the world media after US President Barack Obama’s visit to Saudi Arabia in late March. They recall that nearly 30 years ago, an oil collusion of these countries had undermined the USSR economy. Russian experts do not believe that such a scenario can be repeated today.

American financier and billionaire George Soros has recently urged the White House to punish Russia by influencing oil prices.

“If Arab oil floods the world market, the collapse of the Russian Federation is guaranteed in a year,” writer and former officer of the USSR Main Intelligence Directorate (GRU) Vladimir Rezun, best known under the pseudonym Viktor Suvorov, said in an interview to

Only Saudi Arabia can try to “harm” Russia on the oil market, but this would be unprofitable for Riyadh, Russian President Vladimir Putin said on Thursday in a live Q&A session with Russian citizens. “I do not think our Saudi friends will take steps for any sharp changes (to increase oil supply volumes to lower the price) to the detriment of themselves and Russia’s economy,” Put said, stressing that Russia and Saudi Arabia had good relations despite their certain disagreements over Syria.

The Russian president said that the Saudi budget is calculated proceeding from the price of $85-90 for barrel, and for Russia’s budget, it is $90. “If the prices drops lower than $85, Saudi Arabia itself will lose and have problems. For us, lowering the price from $90 to $85 is not critical,” Putin pledged. Also, Saudi Arabia is an OPEC member, and “it’s a very difficult matter” for the organization to increase production, he said.

Putin added that it would also be disadvantageous for the United States which is currently developing shale oil and gas production.

The United States and Saudi Arabia had already used the oil market as a lever of pressure on the USSR when Moscow was fighting in Afghanistan. In 1985, the Saudis increased oil production three times. In 1986, oil price started falling. Oil prices fell more than two times in 1.5 years then.

Russia’s former Prime Minister Yegor Gaidar wrote in his book “Dolgoye Vremya” (“A Long Time”) that the oil price fall in the middle of the 1980s was the main cause of the USSR disintegration. In 1986 alone, the USSR suffered losses of $8 billion (equivalent to current $25 billion) from the oil price slump.

However, experts say that the situation was different nearly 30 years ago. In particular, Saudi Arabia had nothing to lose, because industrial growth compensated for the price collapse at that time.

In the view of Alexander Razuvayev, director of the analytical department of Alpari Group, in the 1980s, countries of the Middle East became allies of the United States because of the USSR active combat actions in Afghanistan. “OPEC oil emissaries were scared of possible territorial repartition. OPEC oil producing countries were afraid to cede their niche to the USSR. The cartel, the main participants at that time being Saudi Arabia and the United Arab Emirates, did not want to take the risk - the sheikhs agreed to let the oil price fall, compensating for the lost profit by increasing the supplies,” the expert stressed.

The Saudis now realize that Russia is not threatening them and do not intend to lose money because of the Americans, Razuvayev told the political analysis center at ITAR-TASS. Besides, the expert stressed, there are suspicions that they (Saudis) overstate their oil reserves’ volume by some 40% and their possibilities to increase production are much more limited.

“In any case, we have the National Welfare Fund and international reserves in case oil prices go down. In addition, the possible oil price reduction will lead to the weakening of the ruble and growth of ruble revenues of our exporters. This will positively affect the budget,” the expert emphasized.

“Oil price fluctuation in the conditions of world instability is a normal phenomenon and so far it does not critically affect our economy and the national budget,” Director of the Russian National Committee of the World Petroleum Council (WPC) Vladimir Kornev told the Rossiyskaya Gazeta newspaper. “The price range of $105-100 for barrel is optimal now, and not only for Russia, but also for all major players on the oil market, including the United States," Kornev noted.


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