Saudi Arabia has been sharply rebuked by the head of the International Energy Agency over its decision to flood the oil market and start a price war with global rivals. Fatih Birol, head of the Paris-based agency, branded the kingdom and Russia, who is also at the centre of the price war, as "irresponsible" and accused them of callous disregard for the global threat of the coronavirus.
"The world is facing a major challenge in fighting against coronavirus,"Birol told the Financial Times. "I find it at best irresponsible that they are having a price war now. The people of the world will not forget who was on the side of fighting the virus, and which countries were on the side of making the fight much more difficult."
Birol, a Turkish economist who once worked for OPEC, expressed concerns over the ability of poorer oil-dependent countries such as Algeria, Iraq and Nigeria to be able to handle a budget shortfall because of the near 25 per cent drop in oil prices. Flooding the oil market adds further strain on the economies of these countries which are already under strain from the coronavirus threat.
Oil prices crashed as much as 30 per cent on Sunday evening following Riyadh's decision to launch a price war against its rivals by increasing output, despite the global economy weakening dramatically and demand for oil dropping as a result of the coronavirus outbreak.
The FT explained that Birol's warning was an attempt to emphasise the danger of destabilising energy markets at a time when the world economies are already straining to adapt to a virus that has killed more than 4,000 people worldwide.
Iraq has expressed disappointment over the Saudi decision to raise oil production at such a critical moment for the global economy. Baghdad is in a precarious situation given that it shares a border with Iran which is battling the worst coronavirus outbreak outside China. Baghdad has complained that a price war to secure market share was not in the best interests of oil producers and said that it was talking with other members of the OPEC+ alliance.
Saudi Arabia, the world's top oil exporter, plans to raise its crude oil production to 12.3 million barrels per day (bpd) next month marking a dramatic escalation in its price war following the collapse of a production agreement between OPEC and Russia.
A price war is expected to not only squeeze Russia, it will also apply pressure on other high-cost producers in the US shale sector, whose growth over the past decade had brought Moscow and Riyadh together.