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Saudi Arabia launches an oil war

  • Category
    India & world
  • Published
    18th Mar, 2020

Saudi Arabia has started an incredible price war with Russia by slashing its selling prices and pledging to unleash its pent-up supply onto a market reeling from falling demand because of the coronavirus outbreak.

Context

Saudi Arabia has started an incredible price war with Russia by slashing its selling prices and pledging to unleash its pent-up supply onto a market reeling from falling demand because of the coronavirus outbreak. Crude oil price plunged by 30% after the announcement and Bitcoin fell by 8%. 

Background

  • Stock futures sank deep into the red with the US exchanges expected to crash as a new oil war sparked by the coronavirus outbreak sent prices plummeting. 
  • Saudi Arabia slashed its export oil prices over the weekend in what is likely to be the 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 Saudi decision to cut prices by nearly 10 percent is a dramatic move in retaliation for Russia’s refusal to join the Organization of the Petroleum Exporting Countries (OPEC) 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. 
  • 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. 
  • The importers, on the other hand, have suddenly got a windfall. 
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