WASHINGTON, March 12. /TASS/. The current standoff between Russia and Saudi Arabia over oil production volume is likely to spark a tactical price war on the global oil market, Ian Bremmer, president and founder of Eurasia Group, the world's leading political risk research and consulting firm, told TASS.
"Most likely outcome is a limited and tactical price war that lasts several weeks or months, until prices are low enough to change fundamental views in Moscow and Riyadh back to some form of compromise on resumed OPEC+ production restraint," the reputable expert said.
According to Bremmer, an agreement between Russia and Saudi Arabia is possible. "The price war will be painful with no guarantee of either side winning a long battle. Combination of resilient non-OPEC supply and the prospect of a massive, continuing stock build will challenge the price war strategy, creating incentives for Saudi Arabia and Russia to resume OPEC+ cuts."
In comment on the US government’s possible action, the expert noted that Washington was considering financial support for US shale producers but production would likely slow gradually over the medium term. "The decline will be slow leading to lower prices as global inventories fill up, putting more pressure on Saudi Arabia and Russia," the analyst warned.
The coronavirus spread, particularly its economic impact, is a major complicating factor that could turn the expected tactical price war into a strategic one, he stressed. "Currently the Saudis believe they can manage markets, but should coronavirus effects continue deep into 2020 then Riyadh could recalibrate."
At the talks on March 6, the OPEC+ ministers failed to agree on further terms of the deal to reduce oil production. OPEC proposed to further reduce production by 1.5 million barrels per day until the end of this year, but Russia rejected this plan. From April, all production restrictions will be lifted.
Russia and Saudi Arabia have already announced plans to increase oil production.