Price wars can be painful — even for the mighty OPEC.
That’s why the oil cartel, along with Russia, is once again entertaining a freeze in production aimed at putting a floor beneath low prices.
The goal is to keep prices high enough to give oil-reliant countries a financial boost, but not so high that they encourage their chief rival — American shale oil producers — to start pumping aggressively again.
However, the very fact that these talks are taking place is evidence of the enormous financial damage inflicted by low prices on oil-rich governments, and their increasingly restless citizens.
At one end of the spectrum, cheap oil is causing food shortages and outright chaos in OPEC member Venezuela. Even the cartel’s kingpin Saudi Arabia has been forced to usher in painful austerity moves. And it’s one of the chief causes of a deep recession in Russia.
“No sovereign producer can be judged a winner,” Helima Croft, a former CIA analyst who is now global head of commodity strategy at RBC Capital Markets, wrote in a recent report. “It is only a question of which cash strapped country can be declared the biggest loser.”