How Saudi Arabia And Russia Got Locked Into An Oil Price War NPR's Ailsa Chang speaks with energy expert and author Dan Yergin about the international brinkmanship causing oil prices to plunge right now.

How Saudi Arabia And Russia Got Locked Into An Oil Price War

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The coronavirus had already slowed down demand for oil when two major oil producers let a long-standing deal collapse this weekend. Now Saudi Arabia and Russia are locked in a price war.

DANIEL YERGIN: I think it's very significant. It's very dramatic. It's one of the biggest that's ever happened.

CHANG: That's energy expert Daniel Yergin of the research firm IHS. I asked him to explain what each country hopes to get out of this situation.

YERGIN: What the Saudis want to do is put real pressure on the Russians. They've cut their prices, the Saudis have. They're increasing production. They're offering big discounts in what are Russia's traditional markets. They want to force Russia back to the table. Russia says, we don't want to really be pushed around by Saudi Arabia, and by the way, we can outlast this longer than you can.

So I think we're seeing, one, at the same time, a battle for market share, a price war going on. But at the same time, there is some reaching out in terms of diplomacy and discussions and - you know, how do we resolve this thing? And then there's a third player in the game, too, because it's really the world of the big three - Saudi Arabia, Russia and the third is the United States, which is - actually, last month, went over 13 million barrels a day of production, meaning that it's by far and away the largest oil producer in the world.

CHANG: And we'll get to the more specific impact on the U.S. in a moment, but I just want to pull back right now. Saudi Arabia is a very prominent member of OPEC. Russia...

YERGIN: The most prominent member.

CHANG: The most prominent member. Russia is not a member of OPEC. Remind us. What was the original purpose of OPEC?

YERGIN: Well, OPEC is now actually celebrating this year - if that's the right word under these circumstances - its 60th anniversary. It was originally formed when or international oil companies cut the oil price in the late 1950s and 1960, when, of all things, Russian - then Soviet - oil was coming into the market and was leading to oversupply. Really, it's kind of like a trade association of the major exporting countries, and it really reflects what those countries want to do. And right now it's down to about three countries that really count in OPEC.

CHANG: Over time, why has OPEC as a trade association, as you call it, become less effective?

YERGIN: I think it's because of the growth of production elsewhere. And Russia actually - you know, a very big producer. But the most important thing that has really changed the global marketplace is what's happened here in the United States.

CHANG: Well, let's talk about this. While this price war between Saudi Arabia and Russia grinds on and the markets keep reacting, how will this affect, ultimately, the U.S. energy sector?

YERGIN: Well, it will affect it negatively because at these type of prices, it's - the domestic companies are really under a lot of financial pressure. They're going to cut back on their budgets. They're going to cut back on the drilling. Some of them will go bankrupt. And they're kind of pulling their horns in wait. And the significance is that it's not just about the oil sector, but this is a major element in our balance of payments now. And it's become - because the supply chains, the equipment, the manufacturers that go into it come from the Middle West and other parts of the country, this has an effect across the entire country, really.

CHANG: Meanwhile, President Trump has been tweeting that the oil prices going down is good for consumers. Is that true, or should consumers be wary about other consequences coming down the pipeline?

YERGIN: It's good if you're a motorist and you're going to go out and fill your car if you're on the road. But I think the thing is that low gasoline prices, low oil prices will not be as important if schools are shut, if people are canceling their trips and not flying and if people are working from home. It's not going to stimulate demand that it would normally do because of this larger thing that has settled over the entire economy, which is, of course, the coronavirus.

CHANG: Daniel Yergin is the author of "The Quest: Energy, Security, And The Remaking Of The Modern World." Thank you very much for joining us today.

YERGIN: Thank you.

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