From Russia With Love.
President Vladimir Putin has invited Saudi King Salman Bin Abdulaziz to Russia amid low oil prices, growing conflict in the Middle East and the possibility of Iran getting nuclear weapons.
Russia and Saudi Arabia are were formerly the world’s top two oil producing nations. That was, until the U.S. tapped into its vast oil reserves locked in underground shale formations, which has helped crash oil prices and hurt the Russian and Saudi economies.
While Russia and the Saudis are still the world’s largest energy exporters, both have seen their finances collapse in the wake of a massive collapse in oil prices. Crude prices are predicted to rise later this year, but so is U.S. oil production. The Energy Information Administration predicts production “to increase from an average of 8.7 million bbl/d in 2014 to 9.2 million bbl/d in 2015 and to 9.3 million bbl/d in 2016.”
While there will be some cuts to U.S. production, it’s still projected to rise and prices are still projected to remain lower than they have been in the past few years. EIA says West Texas Intermediate prices will average just $48 per barrel in the second quarter of 2015.
That’s not good for Russia or Saudi Arabia, both of whom are seeing their finances deteriorate with oil prices so low. Certainly Putin’s meeting with Abdulaziz will touch upon energy issues, including how to move forward in a market with relatively low oil prices.
International Business Times notes that “diplomatic tension between the world’s two biggest energy exporters has also been suggested as a reason for low oil prices.” IBT adds that “[o]bservers have speculated that Saudi Arabia may be using its massive oil reserves to flood the market and keep prices low in an effort to weaken Moscow’s grip on the market.”
Others, however, have suggested that Saudi efforts to flood the oil market was done to punish other OPEC members, like Iran and Venezuela. The argument goes that the Saudis wanted to make sure every OPEC member shouldered production cuts, instead of the kingdom doing it all themselves.
There is also the prospect of more Iranian oil being dumped onto the market after western sanctions are lifted, further cutting into petro-nation finances.
But an end to western sanctions also presents challenges on a political front. Iran has been allied with Russia due to sanctions, but lifting sanctions would mean they would be less reliant on Russia for building their nuclear program or buoying their economy. As for the Saudis, a sanction-free Iran likely means a nuclear Iran, which the kingdom is not prepared to allow.
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