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For three years,
Russia and Saudi
Arabia had a deal.
Together, they used
their collective market
power to put a floor
under oil prices by
limiting their production. Then, about two
weeks ago, it all broke down. The Saudis,
in response to slowing demand for oil,
wanted to cut production further to keep
prices stable. The Russians adamantly
disagreed. They wanted to produce more.
That’s when the Saudis moved to teach
Russia a lesson. They pledged to drown
the market with an added 2.6 million
barrels of crude oil per day and to cut the
price for customers in Europe,
a market crucial for Russia’s
oil industry. Over the next few
days, crude prices fell 30%.
The Saudis’ likely message to
the Russians: “The price is
now lower for both of us, but
we’re grabbing more market
share. Want to talk?”
Nyet came the word from
Moscow: “No need to talk.
Our economy is much less
dependent on oil exports
than yours, and our rainy-day
funds are much deeper. We
can absorb this pain for a long time. Can
you? Let us know when you’ve changed
your mind.” The oil war was on.
Having dismissed the Saudis, Rus-
sia dispatched a message like this toward
Washington: “Let’s be honest. You Amer-
icans have put sanctions on us mainly be-
cause you want to hurt our oil industry to
help your own. That’s how you’ve become
the world’s No. 1 oil producer in recent
years: by attacking our companies. Lower
prices offer big benefts for Russia.”
Lower prices, the Russians hope, will
leave President Trump in a tough spot.
Shale production remains more expen-
sive than traditional oil extraction, so
lower prices will drive some smaller U.S.
producers toward bankruptcy. Nor does
it hurt Vladimir Putin’s feelings to see the
U.S. stock market in free fall, or to imag-
ine less money invested globally in hydro-
carbon alternatives in the coming years.
How long will this fght last? Maybe
for months. The two commanders in
this war—Putin and Saudi Crown Prince
Mohammed bin Salman—are proud,
impulsive men who pride themselves
on toughness. Each believes he has the
best weapons, at least for now. Putin
remembers the tidal wave of Saudi pro-
duction in the 1980s that helped drown
the Soviet Union. Nor is there much like-
lihood of a meaningful intervention from
a preoccupied Trump.All thAt sAid, Putin knows he’s play-
ing a dangerous game. Russia’s central
bank reported last year that
an oil price of $25 per bar-
rel—a number much likelier
now than when this forecast
was made—would push Rus-
sia’s economy into recession.
Putin’s most important proj-
ect at the moment is preparing
the ground to make himself
Russia’s leader for the indef-
nite future. To keep his popu-
larity from falling with Rus-
sia’s economy, he must boost
spending to improve living
standards.
If he devotes too much spare cash to
weathering lower oil prices, Russians
might have to pay much higher taxes.
And though he’s so far managed those
rainy-day funds with great care, Putin
knows we now live in a world where
a storm is raging.
In the end, Putin also knows—or
should know—that U.S. shale produc-
ers aren’t so easy to kill. These are smaller
companies that can go in and out of busi-
ness as prices dictate. The oil price will
be low for a while because the pandemic
will dramatically slow global oil demand.
But eventually, economies will recover.
The Russians and Saudis will talk their
way toward allowing the oil price to move
higher. U.S. shale production will come
back on line. We’re left to wonder just
how low Putin and MBS want to go. □THE RISK REPORT
Russia and Saudi Arabia’s
battle royal over oil price
By Ian Bremmer
Putin’s most
important
project at
the moment
is preparing
the ground to
make himself
Russia’s
leader for
the indefinite
futureHISTORY
How elevators
shaped cities
New Yorkers today likely
walk by Manhattan’s Postal
Telegraph Building at
253 Broadway without a
second thought. But it was
there, in 1893, that inventor
Frank Sprague deployed
the first bank of electric
elevators, fueling the rise
of the vertical city.
Before then, cities were
squat, limited in height by
people’s willingness to climb
stairs. Electric elevators
allowed cities to house more
people on less land than
ever before. The world’s cit-
ies now contain more than
half the global population
but, as of 2012, cover less
than 3% of its land.
Since Sprague’s days,
New York City has grown
a forest of skyscrapers.
In 2017, a group of econo-
mists estimated that the
city’s land—just the land,
not the buildings—was
worth about $2.5 trillion.
This number comes from
what can be built on it or,
rather, above it. Without
electric elevators, all that
space would be nothing
but thin air. —Robert BryceAdapted from A Question
of Power: Electricity and
the Wealth of NationsSprague pictured with
one of his inventions