Saudi and the Oil Price Drop: it’s about Russia just as much as shale

Neil Barnett, in a new blog for the Centre for Policy Studies, suggests that Saudi Arabia is just as interested in undermining the Russian economy as it is in deterring future investment of shale in the US.

Russia’s continuing support for Iran and the Assad regime in Syria brings it into direct conflict with Saudi interests: hence, argues Barnett, Saudi has increased production, the oil price is today around $60 a barrel and the Russian economy is in danger of imminent collapse. The lower oil price therefore serves a far wider Saudi interest than purely the deterrence of further investment in US shale.

Neil Barnett comments:

“Saudi policy can best be described as a rope with several strands. Since Saudi has modest military power (not to be confused with vast military spending), its influence on oil prices is its best means of shaping the world. At this point, low prices serve Saudi strategic interests in many ways:

  • Reining in Russia, whose support for the Assad regime and Iran brings it into direct conflict with Saudi interests (with a break even price of around $100/barrel)
  • Putting pressure on Iran during nuclear negotiations (with a break even price of over $150/barrel)
  • Using joint economic action against Russia to rebuild the strategic partnership with the US, which the Saudis fear could be undermined by a rapprochement between Washington and Tehran
  • Racing to lock in Asian market share through long-term supply contracts
  • Deterring investment in alternative energy and unconventional oil and gas (shale), thereby shoring up the market for Saudi oil in future decades”.

Date Added: Monday 15th December 2014