Two months ago, Russian President Vladimir Putin proposed constitutional changes that were thought to prepare the way for him to continue being the true leader of Russia beyond 2024. Putin is planning to remain as president of Russia following a constitutional amendment last week seeking to scrap presidential term limits to two terms.
Oil prices war could complicate Putin’s presidential plans
However, what has been surprising is Putin’s move to withdraw from the OPEC pact. This came after the cartel proposed a reduction in production to offset declining demand resulting from the impact of the coronavirus. Following Russia’s move not to cut production Saudi Arabia launched an oil price war by indicating that they were also increasing their production, which sent oil prices crashing.
Experts are indicating that Saudi Arabia was aiming for higher prices or maintenance of the current prices by cutting production. Still, Russia was willing to lower the ranges resulting in the fallout of the OPEC deal. However, for Russia, it is more than prices, but it was rather a declaration of war against US Shale companies. The reverberations were felt across the US oil market following the move as Russia appears determined to dethrone the US as the largest oil producer in the world.
Russia seeks to hurt US Shale industry
According to analysts, the Kremlin is trying to stop US sanctions that have hindered the completion of the Nord Stream 2 project. This will ultimately take natural gas to Europe and effectively make Moscow one of the largest energy players globally. However, this might complicate Putin’s plan of the remaining president.
What remains to be seen is whether Russia can withstand the oil price war long enough to hurt the US Shale industry. Russia’s international reserves are currently around $570 billion exceeding the $350 level five years ago when oil prices plummeted. This has been helped by the OPEC deal that had let Moscow run a budget surplus and funnel oil revenue at more than $42 per barrel of crude oil to a national Wealth Fund of $150 billion.