Russia Was Targeting America When It Triggered the Oil War (Source thetrumpet.com)

Saudi Arabia has launched what could end up being one of the worst oil price wars in modern history, and American oil and gas companies could be caught in the cross fire. With fears about a coronavirus epidemic effecting demand for oil around the world, the Organization of the Petroleum Exporting Countries (OPEC) met in Vienna, Austria, on March 6 to propose that total oil output be reduced by 1.5 million barrels a day to prevent oil prices from dropping too fast. Yet Russia refused to cooperate with opec and cut its oil production. This refusal prompted Saudi Arabia to announce that it would not be cutting oil production either. Instead it would increase its oil production by 2 million barrels per day. In an already oversupplied global market, Saudi Arabia’s announcement caused Brent crude oil prices to plunge 31 percent to a low of $31.25 a barrel, its steepest single-day drop since the 1991 Persian Gulf War. It only costs $9.90 for Saudi Arabia to pump a barrel of crude oil out of an existing oil field, while it takes Russia $17.20 to do the same thing. So the Saudi government figures it can survive low oil prices much longer than Russia can.

But the heart of this dispute revolves around America’s oil and gas companies. On February 18, the Trump administration announced economic sanctions targeting Russia’s largest oil company.

The reason for these sanctions is that Russia is helping Venezuelan dictator Nicolás Maduro bypass United States sanctions by transporting his oil for him. Russian President Vladimir Putin may have been retaliating against the Trump administration by refusing to cut oil production. Since most U.S. oil wells have a break-even point of $36.20 a barrel over their production life, American oil and gas companies (which rely heavily on expensive hydraulic fracturing techniques) cannot turn a profit when oil prices are this low. The U.S. has also passed sanctions against companies involved in constructing the Nord Stream 2 gas pipeline between Russia and Germany, saying it is a “tool of coercion” to make the European Union more dependent on Russian gas. “The Kremlin has decided to sacrifice opec+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2,” the president of the Institute of World Economy and International Relations in Moscow told Bloomberg News.