Some wars cannot be won
Saudi Arabia is learning that the hard way, as evidenced by the kingdom’s twin announcements on Monday
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The first involved austerity measures that shift the bulk of the burden of falling oil income squarely onto the shoulders of ordinary Saudis. The second announcement concerned oil output cuts of the voluntary variety – not those mandated by the recent agreement between the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) and its allies.
In case you’re a bit behind on all the drama roiling oil markets this year, here’s a brief recap of the highlights
Prices of global benchmark Brent crude started the year around $66 a barrel. By the close of February, Brent was trading around $50 a barrel as coronavirus lockdowns severely curtailed global oil demand.
Understandably, Saudi-led OPEC wanted to counter this hit with deep supply cuts. But the Saudis could not convince the cartel’s biggest ally – Russia – to play ball.
Riyadh retaliated in March by lowering the price it charges for crude and announcing it would pump oil with abandon – moves designed to steal market share from higher-cost producers like Russia and the United States shale oil firms. There’s a reason they call it a “price war”. Brent subsequently closed out March around $22 a barrel.
It is possible that oil prices would have fallen that far, that fast regardless of Saudi shenanigans. But many analysts believe the price war almost surely hastened the rout. And it has caused all kinds of upset.
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