Oil titans Russia and Saudi Arabia have accumulated vast financial cushions that will help them weather a lengthy price war. It's a battle of nerves - so who will blink first?
Global oil prices crashed by a third after Riyadh discounted its crude and signalled it would raise output. Shares in national oil champions Saudi Aramco and Rosneft tanked.
The world's top two oil exporters each have war chests of around $500 billion to weather economic shocks and are making bullish noises about their stamina as they square up.
Moscow said on Monday it could withstand oil prices of $25-$30 per barrel for 6-10 years. Riyadh, meanwhile, can afford oil at $30 a barrel, but would have to sell more crude to soften the hit to its revenue, according to sources familiar with the matter.
A war of attrition would nonetheless be damaging and force both countries to make difficult adjustments to their economies the longer it dragged on.
"As with any war this comes down to how much pain can be absorbed by each side," said Hasnain Malik, head of equity strategy at Tellimer.
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In Saudi Arabia, Crown Prince Mohammed bin Salman gave the green light for the kingdom, the world's top oil exporter, to pump at will after Russia rejected an OPEC proposal for deeper cuts to cope with the coronavirus outbreak, two sources familiar with the matter said.
The Saudi fiscal breakeven - the oil price at which it would balance its budget - is at around $80 a barrel, double that of Russia, said Malik at Tellimer.
Saudi Arabia enjoys foreign reserves of $500 billion and a low debt-to-GDP ratio of 25% that gives it ample room to borrow.
Saudi Arabia has raised over $100 billion in hard-currency debt since 2016 to offset the impact of lower oil prices.
International bonds issued by the government and its oil giant Aramco plunged in early trade on Monday, and the Saudi riyal fell sharply against the U.S. dollar in the forwards market.
Still, low global interest rates and a recent further cut by the U.S. Federal Reserve mean that despite market volatility borrowers could tap debt investors relatively cheaply.
The problem for Riyadh is that sustained low oil prices could likely constrain government spending on projects that are part of the crown prince's drive to diversify the economy.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, said that with oil prices in the low $30s, Saudi Arabia would post a double-digit deficit as percentage of GDP this year - up from Riyadh's own 6.4% budget deficit projection.
Under President Vladimir Putin, Russia has amassed reserves of $570 billion and the rouble has become free-floating, allowing it to swiftly adjust to market conditions and devalue.
Russia, say analysts, is much better placed to withstand an economic shock than it was in 2014 when the West imposed sanctions over its annexation of Ukraine's Crimea, or than in 2008 when it was buffeted by the global financial crisis.
"Many people critizised us, they said this is a kind of treasure chest, that the finance ministry is sitting on gold," Finance Minister Anton Siluanov said last week about the reserves.
"But now the situation could change and we will finance all the expenses we have undertaken and are obliged to make with this treasure chest."
The $570 billion reserves includes the country's National Wealth Fund, which stands at $150.1 billion or 9.2% of Russia's GDP. The finance ministry said on Monday the fund could be used to offset lower oil revenues if necessary.
The central bank meanwhile said it was suspending foreign currency purchases for 30 days in an attempt to ease downside pressure on the rouble and would take market conditions into account when deciding whether to go ahead with future Russian rouble OFZ government bond auctions.
Still, the rouble crashed to its weakest level since early 2016 on the interbank market and shares in Russian companies fell sharply in London with oil giants Rosneft and Lukoil down 20.4% and 18.5 percent respectively .
Oleg Vyugin, head of Moscow Exchange's Supervisory Board, said Russia would face higher inflation and interest rates as a result of the price war.
Chris Weafer, director at Macro-Advisory consultancy, said it was still possible Moscow could decide to return to cooperating with OPEC by autumn if prices remained very low.
"Putin will be reluctant to run down financial reserves too far to fund an expanding deficit," he added.