Russia and Saudi Arabia agree to freeze oil output

Russian and Saudi ministers met on Monday to discuss the declining oil prices which has significantly affected their budgets as both countries rely on oil revenue. The meeting was previously undisclosed and was attended by other oil producers including Nigeria and Venezuela. The oil prices have been declining for last 18 months receding from the high of 110 dollars per barrel to as low as 27 dollars. This resulted in significant decline of export income for Russia and Saudi Arabia resulting in budget deficits and depletion of foreign exchange reserves. A price below $30 makes it economically unviable for these countries to pump.

Russia has blamed Saudi Arabia for using oil as a foreign policy tool. They met in December 2015 as well to discuss the declining prices but that meeting did not produce any agreement. The recent meeting seems to have produced a better understanding despite being on the opposite side of Syrian conflict. This thaw between the countries could produce a lasting ceasefire that was announced by Munich security conference. Syrian President Assad expressed his reservations about the success of any ceasefire. But the understanding between a major supporter of Syrian regime and Saudi Arabia could help bringing the two sides together for a possible solution.

Oil contributes over 70% of Russian economy. Saudi Arabia is one of the largest oil exporters in the world pumping on average 8 million barrels of oil per day. Saudi Arabia is a major oil supplier to world’s second largest economy China as well as India.

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