Oil: Russia seems to have the edge over Saudi Arabia

To say that the oil markets have been hit by a perfect storm may be the understatement of the year. Russia and Saudi Arabia are now locked in a war of attrition, each convinced the other side will back down first, Angelo Katsoras from the National Bank of Canada reports.

Key quotes

“At the moment, Russia seems to have the edge over Saudi Arabia in this confrontation. Russia has greater reserves and has adjusted better to lower oil prices.” 

“Russia’s economy is more diversified. Oil accounts for a whopping 70% of Saudi Arabia’s revenue, compared to only 25% for Russia.”

“Regardless of who has the upper hand and notwithstanding reports that the two sides have resumed informal talks, we feel that it will be several months before either side gives in.” 

“Both countries also have the financial cushion to absorb losses for several months before worries begin to emerge over the potential impact.” 

“Mounting pressure on their finances will force the two countries to re-open serious negotiations that will ultimately lead to an agreement that will have both sides crying victory.”