Oil War 2020

It’s almost just a distraction from the coronavirus news, but a huge thing in its own right. I’ve started to lazily follow the recent oil war.

The unfolding events puzzle the layman reader, but judging by the contradicting opinions on CNN or Oilprice.com, it also do the experts - supposing they are impartial observers. Are Saudi Arabia and Russia waging a war against the United States? Or against each other? Who started it and why?

A brief summary of what seems to be the facts for me is the following. In the 2010s, America upended the oil industry (and concomitantly geopolitics) by inventing fracking. Between 2014 and 2016 the Saudis tried to kill the nascent industry by ramping up oil production and thus pushing down the prices. Robbing them of their revenues, this move destroyed a lot of smaller fracking companies, but also spurred industry-wide invention. After the cull, the surviving players adapted and proved that they can be profitable at much lower oil prices than it was thought before. Saudi Arabia burned a lot of its reserves and made its enemies stronger at the same time. What seemed like a Luddite attempt at the beginning proved to be a very expensive failure at the end. Fast forward 2020. Because of the pandemic, the demand for oil dropped. And the Saudis are again pumping like nobody’s business. The question is: Why?

And here is where the confusion and speculation start. Allegedly, the Saudis wanted to curb production of the OPEC+ countries to keep prices high, but the Russians didn’t want to go along with that. So the Saudis decided to force them back to the negotiating table by causing them some pain. This is, of course, the exact opposite of what they originally wanted, one can't help but notice.

Two competing narratives are on the market, but neither explains the contradiction above. According to one, the Russians are happy - some even claim they started the whole thing - because this will hurt the American shale industry — although it's not clear why another replay of the same battle plan would be more successful against a more advanced industry than the first one was 5 years ago. Unless, as some say, the fracking industry is not as healthy as it looks at all, and has been running on fumes already.

Other sources claim it’s an attrition game between Saudi and Russia — both are waiting for the other to blink, but it’s quite unpleasant for all participants.

The combined consequences of the oil war and the pandemic are huge. They could wipe out regimes that depend on their oil revenues and are already wobbly. Iran and Venezuela come to mind quickly. They could bankrupt the Saudi. They will certainly ravage not only the shale industry but the renewable energy industry as well.

How long can the suffer-fest last? Which party will be hurt more? What will be its effect on renewables? How can and will the USA retaliate? Will the pandemic eventually render the whole affair a petty game of myopic despots? How much of a cynical asshole one has to be to start this in the midst of the biggest global crisis in living memory? Apart from the last question, the devil is in the details of each. Turbulent times.

Update: the original of this article was written 3 days ago. Apart from minor amendments, it hasn't been updated based on recent news.