Saudi Arabia is offering customers discounts—the biggest being $8 a barrel to countries in north-west Europe—to win market share and strain rival oil producers
NO ONE KNEW exactly what deal would emerge from Vienna, but an accord seemed certain. Saudi Arabia and Russia, two of the world’s oil superpowers, had worked together since 2016 to control output and support prices. With oil demand plunging because of the spread of covid-19, the partnership seemed more important than ever to all producers.
Investors flocked to the yen, a haven, and to government bonds. The yield on ten-year American treasuries fell below 0.5% for the first time. America’s Federal Reserve, which made an emergency cut in interest rates less than a week ago, is now expected to lower rates by a further percentage point by its April meeting, according to the futures markets. That would return the central bank to the zero-lower-bound on interest rates, where it was stuck from 2008 to 2015.
Their blind cross-fire seems to have only added to the uncertainty and anxiety hanging over the world economy. In principle, extra crude production will help the many countries in the world that import oil, even as it harms producers. But the help tends to be diffuse, the harm more acute. Some oil importers, such as Japan, may not spend their windfall gains in full, whereas many oil producers are already overstretched.
Could Saudi Arabia and Russia call off their price war before too many casualties mount? Their partnership has always been uncomfortable. Bitter rivals during the cold war, the two have also been at odds over the civil war in Syria, where Russian forces have intervened on the side of President Bashar al-Assad and, in effect, the pro-Iranian axis. As American oil production surged in recent years, Saudi Arabia and Russia performed an awkward pas-de-deux.
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