In this tariff war, China has decided to counterattack the United States with tariffs of 84% on all imports. A forceful response from the Asian giant, which has claimed its first victim in the crossfire: oil.
Falling prices. The price of a barrel is below $60 and falling. As energy expert Javier Blas has explained, the oil market is going through a perfect storm: on the one hand, the fall in global demand as a direct consequence of the tariff war, and on the other hand, the response a few days ago from OPEC+ to continue producing more, which causes supply to continue increasing. If this situation continues, it could evolve into a real supply shock affecting two giants.
The issue is more complex. OPEC+ decided to increase its oil production despite the fall in prices due to tariffs and concerns about a global economic slowdown. The organisation sought to regain the market share it had lost due to previous cuts. In addition, the growing production of non-member countries and the non-compliant members of the rules to increase supply.
It is going to be very expensive. In all this situation, Saudi Arabia is one of the giants affected because in its recent projects it is diversifying its economy with the Vision 2030 initiative. In it, it is betting on an economic model that is decoupled from oil, but it is still its bargaining chip to continue financing its megastructures, such as NEOM.
As reported by Reuters, the fall in prices threatens to cut tens of billions of dollars from the state budget, as is already being seen in the fall in the stock market value of the state oil company, Saudi Aramco. The impact is huge, as Riyadh may be forced to increase its indebtedness or postpone major infrastructure projects. In fact, according to the same news agency, the International Monetary Fund has estimated that Saudi Arabia needs prices above $90 per barrel to balance its books.
The other giant. The fall in prices is taking another major economy with it: Russia. As the governor of the Central Bank, Elvira Nabiullina, has warned for Reuters, the escalation of tariff wars represents a clear risk for Russia due to the fall in oil prices. In her words, the continuation of the trade conflict reduces global trade, slows down the world economy and, consequently, reduces the demand for Russian energy resources. In fact, with the current war situation, Moscow’s dependence on oil and gas is key, but the data is showing that in March it fell by 17% and is expected to continue to decline in April.
From Moscow. Kremlin spokesman Dmitri Peskov has acknowledged that the oil market is going through an “extremely turbulent” situation, stemming from the trade tension caused by the United States. Meanwhile, the price of Urals crude, the Russian benchmark barrel, is dangerously close to the threshold of 50 dollars per barrel, the lowest level in almost two years. According to OilPrice, the Russian authorities have indicated that a technical fiscal rule will help mitigate the effects on the budget, but oil prices are in free fall.
Forecasts. The price of oil may continue to fall given the current situation: wars, sanctions and territorial instability. All of this affects the perception of risk among investors and without a clear response from OPEC+ the price is falling unchecked.
