It all started at what every-one thought would be a routine meeting between Opec and non-Opec nations in Vienna. There were the usual fake smiles and firm handshakes in front of the cameras from the dignitaries. Bored journalists roused themselves to prepare to write stories they expected never to be read, before they could at last head to the pub. And then, out of nowhere, came a bombshell.
Downward pressure on oil prices from the coronavirus panic was posing an obvious risk to Saudi Arabia’s still heavily oil-dependent economy. And this is what a cartel like Opec is for: to agree to release less oil into the market, pushing the price back up. A Saudi-led motion proposed a cut of 1.5 million barrels per day. To everyone’s shock, Russia rejected this outright. The market was already saturated, the Russians insisted, and henceforth the price should be determined by market forces. It was the very last thing the Saudis wanted to hear.
Mohammed Bin Salman, the kingdom’s de facto leader, is already infamous for making wildly impulsive decisions that have global (invariably negative) ramifications. He became hellbent on punishing the treacherous Russians. Aramco, the kingdom’s oil giant, immediately slashed prices to its key markets — most crucially China, the Saudis’ and the Russians’ most important customer — and promised to increase output within weeks by a staggering two million barrels per day. The result was immediate, and hit world markets almost as hard as coronavirus did.
Oil prices dropped by a third overnight, the biggest fall in three decades. The Dow lost more than 8 per cent, the FTSE 100 almost 9 per cent, Royal Dutch Shell and BP, the UK’s biggest energy companies, lost more than £32 billion — or about 20 per cent — from their combined market value.