Thread by @andrewsweiss

1/x Russia and Saudi Arabia teamed up today to prop up oil prices, which have slid by roughly 25% since early June.

I dug into the key drivers in their relationship and some of the limitations in an article co-written w Jasmine Alexander-Greene

carnegieendowment.org/2022/10/05/wha…

2/x Personalities matter a lot. MBS and Putin revel in taunting the Biden administration. Unfortunately, the Ukraine war changed nothing.

It always pays to remember MBS's comments about Biden's complaints about the Kingdom: “Simply, I do not care.”
theatlantic.com/magazine/archi…

3/x People like to point to the tectonic factors pulling Russia and the Gulf Arabs together: eg the Mideast becoming less important to US nat'l security, the pivot to Asia, drawdown from Iraq and Afghanistan, and surging U.S. oil/gas production. These are indeed real issues.

4/x The White House has emphasized that the US isn't going anywhere and that it won't allow Russia or China to fill any vacuums. Yet neither the Saudis nor the other Gulf countries seem persuaded by US requests that they stop flirting with Moscow and Beijing.

5/x Of course, the fact that the US continues to frame the war in Ukraine as a struggle between autocracy and democracy makes such requests less compelling.

So, too, does the US electoral calendar, as @EdwardGLuce wrote the other day. ft.com/content/c697c6…

6/x But there are bigger (and, I would argue, decisive) commercial motivations that are always lurking close to the surface. Today's moves by OPEC Plus are a testament to that as does the fact that more unites the Saudis and Russians than divides them.

7/x This tweet from must-read oil/commodities markets observer @JavierBlas sums it all up beautifully.

https://twitter.com/JavierBlas/status/1577742625993621505?s=20&t=f_s9nLJpinLwMIgKuQXJ_g

8/x So here's the part that troubles me the most. The US/EU are pushing a complicated proposal to choke off the massive oil windfall the Kremlin has enjoyed over the course of the war without Russia withdrawing barrels from the market (which would push prices higher).

9/x Ukraine's economy is (and will likely remain) devastated by the war. It needs at least $5 bln per month just to keep the lights on.

By contrast, Russia’s current account surplus from January to July was $167 billion, roughly triple the level of the same period in 2021.

10/x Guess who else may not love the US/EU oil price cap proposal? The Saudis.

Acc to fmr Russian energy executive Sergei Vakulenko, they could be worried about similar Western pressure tactics being unleashed over events like the #Khashoggi murder.

carnegieendowment.org/politika/87873

11/x Oil minister Novak today threatened to yank oil barrels over the price cap. "We believe that this tool is in breach of all market mechanisms. It could be very pernicious for the global oil industry...We will be ready to cut production (deliberately)" reuters.com/markets/commod…

12/12 All of this sets up a game of chicken between the US/EU on one side and the Russians/Saudis on the other that potentially aggravates all that ails the global economy.

The next few weeks will be critically important.

Full article here: carnegieendowment.org/2022/10/05/wha…