The oil and gas sector accounts for about 50 percent of the gross domestic product (GDP) and about 70 percent of the export earnings of Saudi Arabia, which has about 18% of the world’s proven oil reserves and remains the world’s largest exporter.
Therefore, as an oil-based economy controlled mainly by state interests, Saudi Arabia can exert great pressure on the price of oil, but its national economy is logically very sensitive to it.
When Riyadh decides to flood the world markets with oil at an unbeatable price, it strongly urges Moscow to return to the negotiating table and directly threatens Washington with bankruptcy for U.S. shale oil producers.
But such a move will have a cost in the midst of a health crisis and thus a drop in world demand for oil so sharp that the price of oil was negative on the last day of quotation of the May 2020 contract for American crude.
The Russian government, which recently welcomed the unprecedented progress in its bilateral relationship with the Saudi government, could review it in depth to the point of reporting its ambition to forge constructive ties.
The U.S. government feels trapped between the welcome usefulness of cheaper oil in the midst of the Covid-19 crisis and the disappointment of seeing its influence over its Saudi protégé quite diminished.
While the global economy is anticipating an unprecedented recession and it remains difficult to predict both the consequences and the end of the epidemic, the price of oil may remain at historically low levels for longer than Saudi Arabia expected.
As a result, Saudi Arabia may suffer from the fall in oil price in such uncertain and serious times and may face unexpected diplomatic and economic fallout.
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