Russian President Vladimir Putin will refuse to accept any extortion by Saudi Arabia for crude oil markets. This is a signal that the price war that dominates global energy markets will continue.

The unprecedented clash between two of the world’s largest oil exporters and former allies in the OPEC+ alliance threatens to send the price of a barrel of oil under 20 USD, but Russia will not be the first to step up and seek a truce, according to people familiar with the position of the Russian government.

It took years for Putin’s cabinet to build up reserves for this type of crisis. Although Russia did not expect Riyadh to cause a price war, the Kremlin is now confident that their country can last longer than the Saudis can afford.

“Putin is known for being insensitive”, said Alexander Dynkin, president of the Moscow Institute for World Economy and International Relations, a state-owned think tank that advises the government on foreign policy and economics. According to him, Putin proves that he is ready for tough competition “to protect national interests and to maintain his political image as a strong man”.

After two decades in the lead of Russia, the president has enough experience to survive the current crisis. Putin is not someone who gives up, even if the battle carries significant losses, they add.

The entire oil market is watching and waiting to see if Russia or Saudi Arabia surrender amid a painful fall in prices and demand a ceasefire. The Brent oil variety fell from over 50 USD per barrel in early March to just 24.52 USD per barrel this week after the Kingdom, angry with the Kremlin’s refusal to take deeper cuts under the OPEC+ quota deal, took a historic leap in raw material extraction, just as the coronavirus pandemic began to shrink.

The losses are already visible to Russia, weakening its currency and potentially putting the nation on a recessionary path. The state budget, which is based on oil prices of just over 40 USD per barrel, will go into deficit this year, forcing the government to use its sovereign wealth fund just two months after Putin promised more social spending.

US President Donald Trump described the price war as “devastating for Russia” and said, “I will turn in at an opportune moment”. The Wall Street Journal reported that the White House is considering new sanctions on Russia as a means of promoting higher oil prices. For now, the Kremlin has refused to change policies amid such restrictions by the Trump administration.

“The economy always suffers from low or high oil prices”, said Kremlin spokesman Dmitry Peskov. “Many companies are suffering now, including shale oil producers in the US”, he explained. Russia is always ready to speak, “especially in such dramatic times”, Peskov said. Earlier this week, he said Russia would like to see higher oil prices.

Russia and Saudi Arabia were the architects of the initial cooperation deal between the Organization of the Petroleum Exporting Countries (OPEC) and several other countries in 2016. Their goal was to end the price drop to 27 USD per barrel and initially agreed to good results.

After 2016, crude oil prices rebounded and relations between the two nations and their leaders remained very warm. But over time, the alliance became more volatile as the Saudis took on a larger share of production restrictions and Russia neglected its obligations.

Putin has become involved in apparent power games, which made the OPEC+ meeting in June 2019 essentially redundant, announcing in advance new cuts after speaking with Saudi Crown Prince Mohammad Bin Salman Al Saud in Osaka, Japan.

Russian decisions have begun to weigh more heavily on OPEC+, which eventually led to a rift in relations with Riyadh earlier this month. Saudi Energy Minister Abdulaziz bin Salman, the Crown Prince’s older brother, demanded further cuts to offset the impact of the coronavirus, but his Moscow counterpart, Alexander Novak, said no.

Saudi Arabia responded with a shocking and fearsome price war that stunned the global oil industry. Riyadh’s unprecedented actions include the most serious price cuts in the last 20 years, a record jump in supplies and a wave of oil-filled tankers, as well as tens of billions of dollars in new fields.

If this market-shocking strategy was designed to discourage Vladimir Putin, he is not succeeding so far.

The Russian president, of course, refused to cede under the pressure of falling oil prices. From the brutal crackdown on Islamist terrorists in Chechnya to the recent squabbles with Turkey over the civil war in Syria, Putin has shown that he is ready to confront his enemies despite military and economic pressure.

In 2014, when waves of Western sanctions hampered the Russian economy over invading Russian troops in Ukraine, Putin refused to consider calls by some of his allies to soften actions.

Putin’s team expected the collapse of the OPEC+ talks to cause prices to fall, two sources said. The Russian leadership was ready to drop oil prices to 20 USD and is aware of the economic impact.

However, with the bleeding of the national economy, “Russia has enough pragmatism and common sense not to refuse talks”, with its OPEC partners, Alexander Dynkin said.

The Kremlin is still open to cooperating with the cartel but under Russian conditions. Moscow’s proposal, which was rejected by the Saudis, about OPEC+ maintaining existing production cuts until the end of June, remains.