The recent deal between the world’s major oil producers has ended a crisis within the energy markets that had required the intervention of US President Donald Trump to stop what has been known as the war of production and prices between Saudi Arabia and Russia. The crisis has led to a decline of 40 percent in oil prices since the beginning of March 2020 when Saudi Arabia and Russia failed to reach an agreement on an emergency plan to deal with the abundance of supplies within the OPEC+ group.
The policies adopted by the leading countries in the oil market influence the shape of the market and how it responds to changes. In March 2020, Russian policy drew the country into a price war with Saudi Arabia, leading to a sharp drop in crude oil prices. In response, the USA changed its short-term approach in order to protect the US shale oil industry, by pushing for an end to the Russian–Saudi price war and the completion of the OPEC+ deal, which was concluded on April 12. The deal is evidence of the many overlapping interests that these countries share, which enabled them to reach a deal on a number of policies despite having different objectives for the oil market.
Oil markets have experienced their biggest crisis in the modern age. The negative dimensions of the coronavirus crisis and the price war crisis between Saudi Arabia and Russia have greatly affected the oil sector in terms of prices and existing and future investments. Those crises have brought the sector to a standstill. On the one hand, the shock has been unprecedented for the global energy markets in terms of both the speed of its spread and the size of its impact. On the other hand, the spread of coronavirus has led to the collapse of global demand for liquefied natural gas (LNG) and disrupted industrial production.
With regard to investments in the oil sector, one of the main effects of the oil supply crisis today is the announcement by major companies in the oil sector of reducing capital expenditures, particularly in the area of exploration and development of new oilfields. Low oil prices will be translated into higher oil prices in the future if investments in drilling, exploration and production are halted.
After several days of talks between members, the Organization of the Petroleum Exporting Countries (OPEC) and the countries allied to it from outside OPEC, led by Russia, in what is known as the OPEC+ coalition, agreed on 3 December 2020 to raise crude supplies by half a million barrels per day starting from January 2021. While the move constituted a positive support for the oil markets, this optimism remains fraught with caution due to the fragility of the markets as a result of the blurred expectations about the future of the return of economic activity.
The Central Asian republics have emerged as major players in the energy markets in the post-Soviet era, along with some Eurasian players such as Azerbaijan.
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