In the midst of Saudi Arabia’s high risk gambit of protecting its global market share against US shale oil producers, the Saudis’ recent deals might actually help a powerful non-OPEC country, Russia. Keeping OPEC’s oil taps flowing at current production levels is just one part of the Saudi strategy. The other side of the equation is to firm up market share by cutting discount deals with key players in its target markets. Accordingly, Saudi Arabia has been giving discounts to European and US buyers. Interestingly enough, it has been raising its prices with its Asian customers. This can only help Russia.
Over the past several years, Russian and Chinese officials have been working on strengthening their countries’ economic ties. Saudi Arabia’s moves will only ensure that more and more China-Russia deals regarding oil imports and supply will be in the offing. This makes all the sense in the world as moves are on the ground in Europe to slowly wean itself off Russian oil dependency. Russia, being able to read the economic tea leaves, has been turning increasingly to the East-China-as its primary market for its energy sector. As more and more Asian countries feel the brunt of Saudi Arabian oil pricing policies, Russia will continue to look attractive as an alternative supply source.
Not only does Russia have the willingness and eagerness to cut deals-as judged by its past deals with China-it also has the infrastructure, scale and volume to supply Asia. Saudi Arabia’s gambit against North American shale outfits might have the unintended consequence of shifting large chunks of Asia’s oil market to the Russians. Saudi Arabia would be wise to reconsider its policies. While the American and European markets may be huge now, much of the future’s economic growth and potential is definitely in the Far East. Harmful short-term thinking?
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