An Agreement Between Russia and Saudi Arabia?

Interesting article by Business Insider, titled “Russia and Saudi Arabia are sending signals to each other about what happens next to the oil market”, September 2015. The article says that according to Arkady Dvorkovic, the Russian deputy prime minister, OPEC countries will not be able to keep the current levels of oil production and low prices in order to “kill” their competitors and maintain their market shares. According to the Russian deputy prime minister these countries can last from a few months to two years.

According to Business Insider the Saudis decided in November 2014 to increase their oil production by 2 million barrels per day, in order to drive off the market the American companies which exploit shale oil fields, and also the companies which work with traditional reserves but at deep sea levels at high costs. The article says that the Saudis would not be willing to accept a lower oil production level unless Russia agreed to cut her production, currently at 10.7 million barrels per day, by at least 500.000 barrels per day.

According to Business Insider, Igor Sechin, the head of the state owned Russian Rosneft, Russia’s biggest oil producer, is a man very close to Putin, and therefore Putin could reduce the Russian production if he really wanted to. The OPEC countries, together with Russia, account for 45% of the global oil production. Business Insider also mentions the huge social packages that the Saudi leadership has to pay in order to maintain internal peace. At current price levels the Saudi economy runs with an annual deficit of 20% of GDP. I must say that generous social benefits was one of the main reasons the Saudi leadership escaped the Arab Spring, because these benefits make it much harder for the Turks, the Iranians and the Qataris to turn the Saudi population against the Saudi king. The article concludes that even though Russia and Saudi Arabia are competitors, they might have to coordinate their oil production to a certain extent, because the current oil prices hurt both of them.

For the article see

“Russia and Saudi Arabia are 'sending signals to each other' about what happens next to the oil market”, September 2015

http://www.businessinsider.com/russia-and-saudi-arabia-are-sending-signals-to-each-other-about-what-happens-next-to-the-oil-market-2015-9?nr_email_referer=1&utm_content=emailshare&utm_medium=email&utm_source=Triggermail&utm_campaign=BI%20Select%20Weekend%202015-09-06&utm_term=Business%20Insider%20Select