Saudi Arabia Goes Whistling Past the Kazakh Oil Graveyard
The kingdom’s attempts to enforce quota discipline on the OPEC+ cartel are doomed to fail.
Saudi Arabia seems unwilling to drive oil prices low enough to force Kazakhstan to stick to its OPEC+ output quota.
Photographer: Andrey Rudakov/Bloomberg
The four most dangerous words in finance are “this time is different.” History suggests that when Saudi Arabia launches a price war against one of its OPEC+ allies, it ultimately succeeds — but this time really will be different1.
Saudi efforts to bludgeon Kazakhstan into compliance with its OPEC+ oil production quota are doomed to fail. Ostensibly, Riyadh is trying to reestablish discipline among rogue producers; Kazakhstan and several others are cheating on their output targets. To force them to relent, the kingdom is voting at OPEC+ meetings to raise group production faster than previously expected, hoping that the ensuing price decline forces the troublemakers into line. In OPEC+ parlance, the Saudis are trying to give the Kazakhs a sweating.
To be sure, the kingdom isn’t only focused on Kazakhstan. Its oil policy is multidimensional: It appears to be trying to recoup market share, probably from US shale producers, and is simultaneously using cheap crude as a tool in diplomatic talks with US President Donald Trump.