Oil Crash: Saudi Arabia's Price War Worked Once But May Backfire - Bloomberg:
In a war of attrition, the winner isn’t the force with overwhelming power, but the one with the greatest capacity to sustain damage.
The current price war in the oil market is little different. Brent crude fell the most since the 1991 Gulf War Monday, dropping 31% in a matter of seconds, after Friday’s OPEC+ meeting broke up in disarray and Saudi Arabia slashed its crude prices and promised a surge in output.
That decision to open the spigots may seem contradictory from a country that just days ago was trying to coax Russia to join a 1.5 million barrels-a-day production cut. What’s happening, though, is really just a change of tactics. While previously Saudi Arabia hoped to maintain its position and revenues in the oil market by encouraging cooperation between major players, it’s now betting that its best prospect is to do the opposite: Engage in a game of chicken with Moscow and the U.S. independent oil industry, and count on being the last player standing.
If done right, this approach can be devastatingly effective. The current crisis looks like nothing so much as Saudi Arabia’s decision to flood the oil market in 1985 after years of restraint. That event, as we’ve written, ultimately helped precipitate the fall of the Soviet Union.
In a war of attrition, the winner isn’t the force with overwhelming power, but the one with the greatest capacity to sustain damage.
The current price war in the oil market is little different. Brent crude fell the most since the 1991 Gulf War Monday, dropping 31% in a matter of seconds, after Friday’s OPEC+ meeting broke up in disarray and Saudi Arabia slashed its crude prices and promised a surge in output.
That decision to open the spigots may seem contradictory from a country that just days ago was trying to coax Russia to join a 1.5 million barrels-a-day production cut. What’s happening, though, is really just a change of tactics. While previously Saudi Arabia hoped to maintain its position and revenues in the oil market by encouraging cooperation between major players, it’s now betting that its best prospect is to do the opposite: Engage in a game of chicken with Moscow and the U.S. independent oil industry, and count on being the last player standing.
If done right, this approach can be devastatingly effective. The current crisis looks like nothing so much as Saudi Arabia’s decision to flood the oil market in 1985 after years of restraint. That event, as we’ve written, ultimately helped precipitate the fall of the Soviet Union.
