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Russia Political Analyst Predicts Agreement With Saudi Arabia Over Output Cuts


Kirill Zadov, a political analyst at RUSA Radio, joined the Contrarian Investor Podcast this week for a special edition episode focused on the sell-off in oil markets.

Zadov’s insights can only be seen as bullish for oil prices in the medium term. Russia and Saudi Arabia should reach an agreement to cut output “within two weeks,” so by about March 23, he said. The price of oil should not drop below about $25 per barrel in the interim.

Russian President Vladimir Putin and Mohammed bin Salman, the crown prince of Saudi Arabia, have a “pretty good” relationship and “should come to terms” in “two weeks,” Zadov said on the podcast, recorded March 9.

Fiscal concerns for Putin’s government is probably what led Russia to decline Saudi Arabia’s offer of production cuts, which have helped the U.S. shale industry at the expense of Russian national companies, Zadov said. Russia has been expanding its budget after years of austerity but its economy was seen as strong enough to tolerate lower oil prices. But over the long term, there would be a need for increased revenues. “The budget is not in bad condition right now, so they need extra income. That’s probably why Russia said no” to Saudi Arabia’s proposal, according to Zadov.

Whatever the reasons for the impasse, “I don’t think it’s leading to any constructive outcome” for either country, he said. “As soon as possible they’ve got to come to terms and agree on something. Otherwise they’re going to destroy each other’s economy.”

Russia is in a worse position than Saudi Arabia to deal with lower oil prices, according to Zadov. Russia is still under sanctions from the U.S. and Europe and its oil infrastructure is in need of investment. Saudi Arabia has more reserves. both in terms of oil and foreign currency, and a lower debt-to-GDP ratio. But Moscow can live with $25 to $30 per barrel oil for six to 10 years. The kingdom can only afford oil to go as low as $30 per barrel and would have to sell more reserves, according to a Reuters article that cited sources familiar with the matter.

At the time of this writing, reports were of escalations in the price war, with Riyadh unveiling a plan to maximize oil output. Prices have fallen by 50% this year and this morning dropped on this latest news, with futures trading in the $33 range.

Zadov is a host at RUSA Radio, the largest English-language Russian radio station in North America. Born in Russia, he moved to the U.S. to study political risk and conflict resolution, with a focus on the Middle East. He is a frequent lecturer on these topics.

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