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Saudi Arabia, however, is looking at a situation in which a straightforward strategy does not seem to exist. Without higher crude oil prices, not only is the Kingdom’s flagship Saudi Aramco suffering but most government projects too. The world’s largest oil company has already put several major new projects on hold, while at the same time reassessing investment levels of others. High-profile offshore projects, such as the Red Sea or the setup of the new shipyard in Ras Al Khair, are not progressing as fast anymore, showing some internal constraints.
Aramco is also being squeezed by Riyadh for cash to fund the ongoing Saudi Vision 2030 projects. Diversification of the economy is needed, but without cash, projects are being delayed or even put on ice. The Kingdom’s finances are struggling, already shown by the fact that international interest for Saudi (and Russian) government bonds is waning. Last week’s US dollar-denominated government bonds to Russia and Saudi Arabia have fallen, mainly due to lower oil prices and US election issues. If capital markets are getting worried, then Riyadh and Moscow really are in trouble. Drastic measures will need to be taken.
With an internal crisis looming, the Bear and the Kingdom could be forced to take totally different roads. If the threats made by Saudi Arabia’s Minister of Energy Prince Abdulaziz Bin Salman that the Kingdom has had enough of profit takers, short investors, or lack of support of members, are to be taken face value, the market should not be surprised if the OPEC leader decides again to go its own way. A more aggressive move by Riyadh towards market-share or oil prices is not at all unthinkable. The ongoing financial onslaught wreaking havoc on IOCs and oilfield services is also hitting NOCs. Revenues and profits are still high, but their respective governments are in dire need of cash. The relationship between Russia and Saudi Arabia may have appeared to be a marriage made in heaven, but now it is all falling apart.
With internal financial pressures and increased unemployment, especially amongst young people, young leaders in the Middle East are likely to follow their hearts. If cooperation will not bring the necessary rewards, the old option of a new oil price war is not unimaginable. The global energy transition and fossil fuel divestments are already removing the weak for the oil and gas industry. There is a need for consolidation, maybe Russia and Saudi Arabia will follow a Malthusian-Darwinian approach in the future. This time, both IOCs-independents and some weaker OPEC+ producers will suffer. Statements made these weeks that Saudi Arabia wants to be the last oil producer standing or the “Sole Survivor” should not be taken lightly. This implicit threat needs to be taken at face value. The gloves are likely to come off in the coming months, and oil markets will have to be ready.