Analysis: Chronicles of an Oil War

Is the Russia – Saudi Arabia oil war really ‘real’ or is it a ‘marriage’ of convenience?

We live in strange times, that is a fact that cannot be easily disputed. Whether one’s definition of ‘strange’ is different from another’s, we are witnessing situations and events that are unprecedented; maybe these are the signs of our times. Global sanitary crises, massive (billions-wide) lockdowns, unprecedented pause of wars globally, pollution slowing down within weeks, stock markets going up while dozens of millions of people are losing their jobs. These are only a few of the signs of our times and very indicative of a Tomorrow being shaped, in a context far different from what we knew from Today and Yesterday.


One of the strangest things is what we recently witnessed with negative prices of Oil ( As a quick recap, WTI oil dived more than 100% this year and Brent oil has fallen about 65%. With storage at capacity, the companies that could store oil were not buying it anymore as they did not use it and had no space to store it. As sellers rushed to dispose (or more accurately, throw away) the May contracts, futures prices nosedived and plunged below zero for the first time. Those negative prices, per barrel, practically meant that companies would have to pay a buyer to take oil off their hands and store it if they want to exit the market. This meltdown was not just the direct effect of the world’s diminishing needs for oil (due to the Corona virus lockdowns) but rather the ‘perfect storm’ and an amalgam of strange and far more insidious stories. In this article, we are going to dive deeper into one of those stories: the curious relationship of Saudi Arabia and Russia and how their troubled ‘marriage’ of convenience helped the perfect storm formulate and unleash its consequences on the oil industry all around the globe.

Speaking about forming a Tomorrow far different from what we knew Yesterday, president Trump and his foreign policies have been a catalyst for this evolution. The peculiar form of isolationistic approach he has pursued so far has created global power vacuums that someone – one way or another – would move in to fill in. This signals the dawn of a new era in international politics giving birth to powerful competition dynamics and the realignment of America’s relationships around the world. The most prominent and indicative region for this type of observations is this more apparent in the Middle East, where supposed U.S. allies are developing diplomatic, commercial, and military relationships with the same players Washington is supposed to be against, China and Russia, and all this while America is still trying to disengage from the region (withdrawal from Afghanistan and Iraq). That has led many of the ‘abandoned’ regional powers to conclude that the new regional equilibrium will be forged by either Beijing or Moscow. Furthermore, we see efforts of other players completely diverging from ‘normality’ towards their own quest for regional power, like Turkey which has been long now proclaiming itself as the new rising regional player ( But let’s focus on Moscow and Riyad for now.

Almost a third of a century post-Cold War, the Middle East is indeed more welcoming of the exercise of Russian power. Russia has taken care of its fame as a consistent and reliable partner and the US have been doing exactly the opposite. The contrast between the way the United States is perceived to have abandoned Egyptian leader Hosni Mubarak and, on the opposite, Russian President Vladimir Putin’s intervention in Syria to save Bashar al-Assad made a big impression on Arab potentates. Russia has paid, in blood, for their newly created reputation of reliability towards its allies. Furthermore, either due to cultural or political similarities, regional leaders seem to be inspired more by other strongmen, like Vladimir Putin, rather than ideas or notions of political stability, democracy and freedom.


A troubled, complicated ‘marriage’ of convenience

Back in 2015, Russia was directly and severely (even if they do not want to admit it) hit by U.S. enforced economic sanctions and even further by the global community’s outrage over its annexation of Crimea. It was another strange story with ‘Russia’s little green men’ being deployed and seizing and entire region, without insignias or confirmation that they were actual tactical Russian military forces. These events have obviously not only curtailed foreign investment but sparked a new era of Russia’s isolation by the Western powers. Apparently, Russia had to adapt and overcome, seeking alliances and new partnerships elsewhere. It was that time where the strengthening of the Russian-Saudi relationship escalated. Namely, they signed an agreement with Saudi promises of pouring USD 10 billion onto their newly found partner.

Russia and Saudi Arabia have intensified their reconciliation efforts in an unprecedented way. Crown Prince Muhammad bin Salman (MBS) visited Russia in May 2017, paving the way for his father, King Salman to meet Putin right after. The visit, the first ever by a sitting Saudi monarch to Russia, was hailed as historic instance in the Russian and Saudi media. Moscow rolled out the red carpet for King Salman and many experts were hopeful that the visit would open a historic new chapter in the relations between the two countries. Putin’s visit to Saudi Arabia, back in October 2019 and the oil deal in December of the same year gave the impression that Saudi-Russia relations were at an all-time high.

Some of their agreements, the result of a previous oil war during which the Saudis refused to cut production hoping to damage U.S. shale producers, stabilized energy markets. The price of a barrel of oil returned to a level that helped the Saudis and Russians pay for the things they have wanted to do, whether prosecute wars or/and invest in social transformation. Saudi Crown Prince Mohammed bin Salman’s Vision 2030 is expensive, after all.

The agreement was about oil production, but it held out the prospect of a changed configuration of relations in the Persian Gulf. Evidently and logically, oil has constituted the core of the deepening Saudi–Russia relationship as they have both been coordinating under the umbrella of the extended OPEC ‘alliance’ (OPEC+) to stabilize the oil market and keep the oil prices at beneficial (for their own benefit) levels. For the Saudis, the Russians were a protective diversification move against the volatile reactions of the United States which is gradually (and somewhat spasmodically) withdrawing from the Middle East. Russia, in turn, is meticulously working on its regional profile and influence on many levels (Syria, Northern Africa and the partnerships with the Arab kingdoms). Whether this was actually at America’s expense is to be judged by historians, but perception is often more important than reality. At the least, Putin wanted everyone to believe that he could snatch the Saudis away from the grasp of the United States; Afterall, it did work with the Egyptians and the Turks already – kind of. The S-400 air defense system has been one of the most efficient ‘fishing hooks’ of Putin so far; he sold it already to the Turks and offered it also to the Saudis.

Soon after that, however, the Russians came to realize that the Saudis promised a lot but delivered only but a fraction. More specifically, it is reported that only a quarter has been invested so far, something that a strongman’s principles about doing business and keeping agreements makes it hard to accept. It did not take much for tensions to start escalating. Russian media reported that a deal between the Russian Direct Investment Fund, a state-owned investment agency, and Saudi Arabia’s Public Investment Fund (PIF) to acquire a nearly 31% stake in a Russian oil services company had been put on hold, almost indefinitely. The Saudis instantly turned towards the West and invested in European counterparts; this is one of the benefits of being versatile and rich.

Middle East analysts claimed that the partnership’s common goal of higher oil contrasted sharply with the partner’s divergent foreign-policy interests and that made it difficult for them to cooperate.

“It was an arms-length relationship to begin with, based on shared economic interests but clashing foreign-policy interests, so I think it will be difficult for either side to closely cooperate with the other,” James Phillips, one of the experts and part of an Washington think tank, mentioned. “They will continue on in kind of a cold, transactional relationship, Riyadh and Moscow back opposite sides in the war in Syria, while the Kremlin continues to support the government in Iran, a political and religious adversary of Saudi Arabia.”

A day after Russia rejected its PIF proposal, Saudi Arabia escalated almost on the spot – and on top of the move to invest elsewhere – by announcing a significant ramping up of oil output in April by more than 2 million barrels a day even as the coronavirus caused demand to drop. The aggressive move, which eventually caused the largest one-day decline in oil prices in nearly three decades, was probably either an attempt to get the Kremlin back to the negotiating table or just a vindictive strongman move, or maybe both.

The thing is that whatever the couple was thinking, they did not consider the collateral damage or the impact their fight would have on the global equilibrium. Intentionally or not, the open price war has sucker punched the U.S. oil industry with a massive decline in oil prices. Meanwhile, and part from the ‘marriage quarrels’ the world was marching into an unprecedented lockdown; hence the immense drop in demand was caused by the fall-off in travel worldwide, and the quarantine of millions of people due to the coronavirus. This was pretty much when the clouds had turned black and the perfect storm was about to erupt.

“While OPEC leadership retains hope that the price collapse will be a catalyst for a reconciliation between the two oil heavyweights, President Putin may not quickly capitulate,” reported Helma Croft, head of global commodities strategy at RBC. “We fear that it could be a protracted struggle, as Russia’s strategy seems to be targeting not simply U.S. shale companies— but the coercive sanctions policy that American energy abundance has enabled.” She further claimed that Russian President Vladimir Putin most probably influenced by Igor Sechin, chairman of Russia’s biggest oil company Rosneft. Sechin, another former intelligence-now turned oligarch – and a strongman, has long opposed the OPEC production deal. He is considered as deeply nationalist and reportedly enraged by the stalling of Nord Stream 2, due to US intervention (

Croft claims: “For now, it seems that Sechin is not seeking to eliminate simply the market share of U.S. shale producers, but the aggressive U.S. sanctions policy that American energy abundance has enabled. Trump administration officials have repeatedly bragged about the ability of the U.S. to punish its foreign policy adversaries by sharply reducing their oil exports, and to be shielded from the price impact because of abundant domestic energy supplies. Undercutting American energy dominance therefore most likely appeals not only to his bottom line but also to his ideological (affinity)”.

The U.S. Department of Energy said recently that the U.S. will remain the world’s number one energy producer because of its pro-growth policies. More specifically they announced that “These attempts by state actors to manipulate and shock oil markets reinforce the importance of the role of the United States as a reliable energy supplier to partners and allies around the world. The United States, as the world’s largest producer of oil and gas, can and will withstand this volatility”.


A deeper look into the Oil crisis

Trying to analyze deeper the correlated factors and causalities in this equation, it is nearly impossible to avoid involving the personalities of the men involved. Mohammed bin Salman (MBS), the Crown Prince of Saudi Arabia, has been portrayed as impetuous and hot tempered; his name has been involved in many strange cases and actions. A characteristic example took place recently when senior royal family members, seen as rivals to MBS, were detained. The three senior princes including Prince Ahmed bin Abdulaziz, the younger brother of King Salman, and Prince Mohammed bin Nayef, the king’s nephew, for allegedly planning a coup.

Nevertheless, MBS has always been cultivating his close ties to Washington, and specifically with another strongman: Donald Trump. Saudi Arabia has also won favor in Washington with deals for U.S. military equipment, as well as the young prince’s vision for a diversified Saudi economy, away from oil.

As the world was not just sneezing, but actually going into shock due to COVID19, the Saudis suggested in an OPEC meeting to reduce production. The Russians rejected it, saying they wanted to assess the full effects of crisis ahead of acting in such a manner. More likely, the Russians did not want to cut production because they were more interested in hurting U.S. shale producers and gaining market share over the Saudis. The rest is a strange spiral of shakedowns, powerplays and a lot of ego.

As Rosneft’s spokesperson Mikhail Leontiev stated, “If you always give in to partners, you are no longer partners. It’s called something else.” When the Saudis asked Russia to contribute to the new deeper cuts, Moscow presumed that Riyadh was doing the U.S. a favor at Russia’s expense because deeper cuts would complicate its position vis-à-vis several players when it came to market shares and would empower U.S. shale oil companies, bringing more benefits to them, again at the expense of Moscow.

The Saudi officials, enraged by the potential of being played by Russians, walked away from the meeting vowing to increase production to 10 million barrels per day and began offering immense discounts. This was a move to intimidate the Russians and force them back to the negotiating table. Riyadh offered to the oil refiners unprecedented discounts for its crude oil stock, reducing its selling prices to a low of 30 years. The kingdom also announced it was boosting production to an all-time high above 12 million barrels a day for April, up to 25%. The Russians kept their poker face and called the ‘bluff’. But it was not a bluff after all; the Saudis did not make empty threats and hence the oil war.

When the markets opened in the following hours, no one would have imagined the consequences. When the selling started, benchmark Brent crude plunged more than 30% in seconds, something that hadn’t happened since the 1990 Gulf War. What followed was the most chaotic month in the oil market’s history, threatening the stability of the petroleum-dependent nations worldwide and titanic oil corporations alike. With demand for jet fuel, gasoline and diesel sharply down, refineries cut production and reduced their crude purchases.

Without fully realizing it, the Saudis had caused the previously forming perfect storm to erupt and rain down on the heads of everyone in the oil business, and not only. The global economies were already succumbing to the COVID19 sanitary and subsequent economic crisis. Heavy industry and transportations were already aware that ‘winter is coming’ and had already put a halt into their operations and consequently their energy needs. Brent crude, the North Sea blend used as a global benchmark, had briefly traded above USD 70 a barrel at the start of the year. By end of March, it plunged to less than 22 dollars, the lowest in almost 20 years.

The two oil titans traded accusations regarding which side the responsibility lies with. Putin accused Saudi Arabia of withdrawing from the OPEC deal and pushing the prices lower than USD 40 per barrel in order to destroy its shale oil competitors. The Saudis released statements, through the voices of Foreign Minister Faisal bin Farhan and Oil Minister Prince Abdul Aziz bin Salman, who blamed Moscow for running away from the OPEC deal while the Kingdom and the other 22 countries were working to convince it to increase the cuts in the production.

There are no winners out of this (maybe China who is eager to collect the scraps and rebuild itself with cheap oil). The United States seems to be the primary collateral victim; members of Congress from states where the fossil fuel industry is important have been especially distressed. Ted Cruz has been notoriously threating every party, urging for resolution. Drillers in Texas and other proud, oil producing states had turned America into the world’s oil superpower after all; hence the millions of jobs at stake. Cruz mentioned publicly some pieces of his discussions with the Saudis: “Their response is, ‘But Russia. But Russia.’ And I said, ‘But Russia garbage. Russia is our enemy, we know it. They behave like it and we treat them like it. You’re supposed to be our friend. And so, don’t screw with us.”

Following the Saudi directive, obscene images followed the raise of production to 12 million barrels. The next day Saudi output crept higher, reaching 12.111 million and went up all the way to 12.323 million barrels a day. That was enough to supply the pre-COVID19 consumption of most of Western Europe altogether. The oil would be loaded in ships in the Persian Gulf and Red Sea and dispatched to markets that were already overloaded.

Francisco Blanch, head of global commodities and derivatives at BofA Securities, mentioned: “The market expected the Saudis to act as they always do, which is to basically curtail production to balance the market, but they went out and did the exact opposite. They could have just stayed where they were and then the question is, is this something the Saudis are doing because they wanted to teach the Russians a lesson and bring them into the fold, or is this alternatively something the Saudis are doing because they believe the Russian theme in this is the right way to deal with the virus? The question is: are Russia and Saudi Arabia joining forces to hurt U.S. shale or are they fighting against each other.”

“The real political fact is that the U.S. is a lot less involved in the Middle East than it used to be, and that Russia has deepened its presence in the region pretty dramatically in recent years, and this is both political and economic. So, Russia, in other words, carries more weight than it used to. Its influence is being felt alto more than in the past,” Blanch also said.

Arguably, the Saudis thought that they could come out of the oil war victorious because they calculated could store more. However, Russia knew that Riyadh could not use this leverage for a long time because the world storage capacity was about to reach its limit and when this happened, it would force Riyadh deescalate.

From the Russian perspective, when the Saudis decided to wage the oil war, they were shooting themselves in the foot and their American friends too. If they stopped the war at this point, then no harm in letting some oil spill and the U.S. shale companies lose profits and market shares. We will go back to square one, only with Russia in a better position than it originally was. HIS’ Daniel Yergin, said it appears Russia’s motives could be driven by its desire to hit U.S. shale, which has been a wild card in the world market over the last decade.

“It’s Saudi Arabia against Russia and Russia against the United States. I think that’s what it is. The Russians can’t increase production much and the Saudis can,” Yergin said. He continued by saying that Russia likely sees a sharper decline in demand and wants to act now. “The first quarter estimate is that the global oil market is 3.9 million barrels a day lower than it was in the first quarter of last year. The overarching issue here is what to do in a market that is contracting on a very large scale as the global economy freezes up”.

Meanwhile, Helma Croft reported from Riyad that it’s clear that Saudi Arabia intends to pump aggressively, flooding an already oversupplied market. She wrote: “During our 36 hours in Riyadh, it was made clear to us that the central banker of oil was preparing for a swift and substantial production increase that could retest the 2018 highs of just over 11mb/d. Despite the huge fiscal costs that such a policy entails, Saudi Arabia seems determined to keep the spigot open until Russia agrees to rejoin the 23 other OPEC+ producers and participate in a massive collective production cut (which could balloon out to even 2 mb/d) to try to address the demand impact of Coronavirus”.

Yergin also said: “This whole energy industry picture is going to be abruptly driving in reverse. The supply chains of the oil and gas reach deeply across the industrial Midwest so this hits the steelworker, this hurts the people who build machines in the U.S. so it’s not just a crisis in the oil patch. … U.S. oil production is going to go down and that would be bad for the trade balance. …The U.S. is number one now in both oil and gas, but at these price levels that’s not going to last very long.”



It seems that, contrary to what he is popular for – starting fights-the peacekeeper in this situation appears to be Donald Trump. That’s the same Donald Trump whose speech cornerstones have always been against the OPEC. All in all, he initially refused to cut American oil production, but was still able to broker the final deal. His phone call with Mexican President Andres Manuel Lopez Obrador, followed by a three-way conference call with Russian President Vladimir Putin and King Salman of Saudi Arabia, came up with the proposal that resolved the Latin American nation’s objections to the agreement.

His efforts were of course accompanied by a colorful chorus of Republican senators in the U.S. threatening Saudi Arabia that “Washington will cut military aid if the Kingdom doesn’t pare its output, and end the price war”. Senator Kevin Cramer, said “Saudi Arabia’s next steps will determine whether our strategic partnership is salvageable.” Sen. Ted Cruz went ballistic on the Saudis by saying: “If you want to behave like our enemy, we’ll treat you like our enemy.”

“Trump views himself as a deal maker so he went to the oil market’s red phone,” said Joe McMonigle, an energy consultant and former U.S. government oil official. The president of the United States clearly saw that the situation was beyond obscene and clearly dangerous for his economy, his oil supremacy but also millions of U.S. jobs. Modern problems require modern solutions and he did provide a very strange but absolutely effective one. When Mexico refused a big output reduction, putting the whole agreement in danger, Trump assured OPEC that the U.S. would cut its own production on its neighbor’s behalf. Mexico would remove 100,000 barrels a day, and the U.S. would contribute an additional 300,000 barrels a day. It is not very certain at this point if Trump knew that what he was offering did not exist, but it worked. To be more specific the reduction of barrels promised, was simply not there – as demand was already diminished and other market factors have the say – not the president. But ultimately his offer was enough. Sunday’s agreement ended a period in which the extended OPEC alliance appearing to be in tatters.


The aftermath of the oil war

Saudi Arabia took a major, poorly timed, risk in launching an oil price war amidst a global sanitary and economic crisis. There will be political, reputational and economic prices to pay; Riyadh may have unleashed something it is unable to control.

Moscow didn’t take the bait and stood its ground, called the ‘bluff’ and eagerly claimed it could withstand lower oil prices longer than Riyadh on account of its higher foreign currency reserves and the lower price it needed for its budget to break even. Effectively, the Saudi gamble put Moscow in a better position not only towards the U.S. but also with regards to their own partnership. It ended almost three years of Saudi-Russian cooperation in energy geopolitics, which underpinned broader bilateral dialogue on political and economic issues. For years Saudis have been trying to utilize their relations with Russia as a hedge against the unpredictability of the U.S. administration; after the oil war, however, they are risking losing both. If Saudi Arabia continues to challenge Russia, Moscow can complicate its already complicated situation with Iran, Syria, and Libya, and even in Yemen.

But, if the Saudis chose to continue the oil war, many oil-producing countries will condemn the already partially isolated Riyadh. Moreover, the oil war would not only kill the U.S. shale oil industry but effectively threaten Donald Trump’s re-election; this is partially why he flew to resolve the situation. This means that the Russians could sit back and enjoy watching Saudi Arabia destroy its relations with the U.S. and lose its only ally in the West. As reported before multiple U.S. senators were blazing against the Kingdom, which was not the case for Russia.

On another level, the impact of the oil war on Saudi foreign policy is obvious. Feeling the pain of the low oil prices and the high costs of their regional adventures, the Saudis seem to be constrained now more than ever. Their priorities are shifting, and because of the pandemic and the oil war, they need to inject a lot of money in the domestic arena. Recently, Riyadh decided to announce a unilateral ceasefire in Yemen. Furthermore, the lucrative transformational plans of MBS are being put on hold.

Konstantin Sonin, a professor at the University of Chicago, reported that even if Moscow had agreed to the initial Saudi proposal, it would not have offset the eventual price decline brought on by COVID19 and the subsequent collapse in demand. Nonetheless, Sechin will probably take the blame in Russia but will almost certainly not fall. Sonin claims that “Sechin will be blamed for this anyway, because in bad times people like to find scapegoats”. Putin and Sechin are both coming from a common background and there is loyalty in that relationship.

The most direct and definitely most significant impact will be on our lives. The oil war’s results will reach all countries and corporations which depend on oil; it will be especially difficult now, that everyone faces rising expenses for healthcare and rely on economic relief packages. If the economic recession is anywhere near as bad as it looks, there will be more late-night OPEC meetings in a few months’ time. With some luck, the oil price battles will not continue before the world finds out which petro-player can sustain the most damage.



The Russo-Saudi partnership was indeed a marriage of convenience and a rather unusual one given that the two countries had been fairly hostile since the Cold War, as the Saudis were warmly supporting America’s anti-Soviet campaign. They have been, fairly successfully, trying to reconcile the past and come closer with potentially common objectives like hedging against U.S. unpredictability. The truth is though, that nations and states led by strongmen and without well-established political systems are always subject to the volatile nature deriving from the character of the same men who rule them. Russia cannot escape Putin’s character; same applies for Saudi Arabia and its rulers. It might even be the case for the United States of tomorrow.

In this particular case, two very strong personalities have been driving the schism between Saudi Arabia and Russia. On the Russian side, Igor Sechin, a pure nationalist who heads the state-owned oil giant Rosneft, and with a Soviet intelligence background. On the Saudi side, Crown Prince Mohammed bin Salman, popularly known as MBS, was the key figure in launching the price war. It is reported that his actions were aiming at punishing Russia for refusing to join in additional production cuts. Of course, the Saudi strategy also sought to undermine U.S. shale producers, but in a far more aggressive way than Russia, which probably wanted to avoid additional cuts. Nevertheless, the gamble will most probably do more lasting damage to the global economy, and the industry, rather than to Moscow.

Ironically, the primary factor that brought the two big producers together is the same factor that brought them back to the reconciliation table: Donald Trump and his unpredictability. He jumped into the fray and in hours he managed to cool the tensions, by offering something totally unpredictable (and pretty untrainable).

As the world is becoming a stranger place, opportunities will always arise for strongmen exercise their power. There is no judgement in that: Putin made Russia of today, on the remnants of a fallen Soviet empire; the Saudi royal family established an empire from the mere sands and dunes of a desert. These are admirable and historic feats that cannot be forgotten or underestimated. The only point made here is that as long as we rely on the characters and strength of single men to rule this world, we have to be ready to pay the price for their flaws too. There is no judgement, exactly because sometimes extreme measures are needed when extreme problems occur. After all, “we live in strange times”.

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