Oil Prices slashes as Saudi Arabia aims price war at Russian production

Saudi Arabia tears its export oil prices as a start of a price war aimed at Russia but with potentially devastating repercussions for Russia’s ally Venezuela, Saudi Arabia’s enemy Iran and even American oil companies.

The effects were quickly felt, as the Brent global oil benchmark price collapsed by about $11 a barrel, or 25%, late Sunday in the sharpest decline since at least 1991, and stock market futures fell by about 3%.

The Saudi decision to cut prices by nearly 10% on Saturday was a dramatic move in retaliation for Russia’s refusal on Friday to join the Organization of the Petroleum Exporting Countries in a large production cut as the coronavirus continues to slow the global economy and, with it, demand for oil.

The cut added further uncertainly to global markets already roiled by the coronavirus. Australian stocks led a plunge in early Monday trading in the Asia-Pacific region, falling 5.9% Tokyo shares fell 4.7%, and Hong Kong opened 4.1% lower. Futures markets indicated big losses for Wall Street and Europe.

The break in a three-year alliance between the Saudi-led oil cartel and Russia to support prices may be temporary. The moves over the weekend may well have been part of a negotiating chess game, and the Saudis and Russians can still reach a compromise. But if the collapse is lasting, oil executives say there is nothing to stop oil prices from tumbling to the lowest levels in at least five years.

A major drop in oil prices would hurt producers around the world, particularly Venezuela and Iran, whose oil-based economies are already under pressure from American sanctions. Export earnings of both countries have already been reduced to a trickle, and a further decline would stretch their abilities to pay for vital services and security.