According to the philosopher John Gray (Why this crisis is a turning point in history):

An increasing influence on the EU will come from Russia. In the struggle with the Saudis that triggered the oil price collapse in March 2020, Putin has played the stronger hand. Whereas for the Saudis the fiscal break-even level – the price needed to pay for public services and keep the state solvent – is around $80 a barrel, for Russia it may be less than half that. At the same time Putin is consolidating Russia’s position as an energy power.

Is this true? The $80 price for the Saudi case seems unbelievably high.

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    It's worth noting that this is not about the break-even cost for producing oil, but about the amount of various budget commitments (e.g. funding social services or military purchases) that they made earlier (during a high oil price) and expected to cover from future oil profits.
    – Peteris
    Apr 12, 2020 at 14:43
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    @Peteris, I was aware of the difference. But Saudi Arabia is small and Russia is big while the production of both is essentially the same (investopedia.com/investing/worlds-top-oil-producers). The Yemen war can be the essential factor? Apr 12, 2020 at 15:39
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    Russia and Saudi Arabia are comparable financially. While the GDP of Russia is twice larger than SA, if we look at the size of government budget, SA budget expenditures are something like 1 trillion riyals and Russian budget expenditures are something like 20 trillion roubles which both are pretty much the same currently, roughly 270 billion USD.
    – Peteris
    Apr 12, 2020 at 22:13
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    @Peteris: + the KSA has virtually no (domestic) taxes, unlike Russia. (The whole point of IPOing Aramco was so that they have something they can tax.) Apr 12, 2020 at 22:31
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    It's my understanding (not authoritative so this is not answer-worthy) that the Saudi oil is not only the easiest to refine, but just about the easiest to extract (Think about the opening to the old Beverly Hillbillies show, where Jed misses shooting some kind of rodent for food and oil starts gushing out). Even if they need X revenue, I'd have to think the costs in getting that oil out would be less, though, if it's all done by agreement with private companies, maybe the distinction doesn't exist. Apr 13, 2020 at 19:23

1 Answer 1


There are multiple different break-even prices that people usually quote.

The fiscal break-even is the oil price at which the fiscal balance is zero.

The external break-even is the oil price at which the current account balance is zero.

Both prices can be very different from what it costs Saudi Arabia to pump oil from the ground. A good dicussion of the meaning of fiscal break-even price can be found here: https://www.cfr.org/content/newsletter/files/Breakeven_Oil_Summary.pdf .

A critique of fiscal break-even methodology by one of the authors of the CFR paper was published in the Financial Times in 2015 https://www.ft.com/content/1a106c00-9740-11e5-95c7-d47aa298f769 . I will quote some of it because you need a subscription to access their web site.

Last summer, when oil prices were still above $100 a barrel, people had a theory for why they would never fall much below that number.

Many major oil-exporting countries had “fiscal break-even” oil prices — prices required to balance their budgets — near that level. The International Monetary Fund (IMF) put Saudi Arabia’s at $98.

Faced with oil supply that exceeded demand, these countries would cut production to shore up oil prices and their finances, keeping crude prices high. How wrong they were.

The folly of relying on fiscal break-even figures to forecast future oil prices was driven home at the now infamous November 2014 Opec meeting, when its members, led by Saudi Arabia, refused to cut at all.

But analysts still point to fiscal break-evens in everything from geopolitical analysis to long-term price forecasts to advocacy efforts aimed at persuading oil-exporting governments to pursue fiscal reforms.

My colleague Blake Clayton and I recently studied the calculation and use of fiscal break-even oil prices. We discovered that their popularity exploded around 2008 as policymakers, particularly in international organisations, grappled for a simple way to persuade oil-exporting countries that they were running dangerous budgetary risks. But they then took on a life of their own.

Market analysts pointed to them as oil price floors. Geopolitical strategists warned of instability if they were breached. The most facile uses of fiscal break-evens — particularly to predict short-term oil price movements — are now discredited. And, while fiscal break-evens do have valuable uses, people are still relying excessively on them to anticipate political and economic developments in oil exporting countries — and even to anticipate what will happen to the oil price over the long run.

Perhaps most striking, then, is how shaky these numbers are. Most organisations that publish estimates release little or no information about their methodologies.

We chose to take a particularly careful look at the fiscal break-even estimates produced by the International Monetary Fund (IMF), which are widely used by firms, governments and international organisations, and are more transparent and rigorous than most. Even these revealed limits that should make users pause.

Estimates are just that. Despite the precision with which they are typically presented — often down to the last dime — fiscal break-even prices come from fallible calculations. Take the example of Saudi Arabia in 2014. In May 2013, when the IMF staff first projected the country’s 2014 fiscal break-even oil price, they pegged it at $88. It was only in October 2014 that the IMF staff raised their estimate to $98 — before increasing it further to $111 in May 2015.

These changes do not reflect big failures on the part of IMF analysts; rather, they are an inevitable result of surprises in Saudi tax collections, investment returns, government spending and other essential ingredients that go into every estimate of a fiscal break-even oil price. This case is typical of the fiscal break-even enterprise more generally.

The case of Russia highlights another big problem. In 2014, most analysts pinned Russia’s fiscal break-even somewhere around $100 a barrel. Yet the oil price collapse swept the rouble down with it. As a result, even when oil prices plunged in the wake of the Opec meeting Russian rouble-denominated oil revenues were virtually unchanged, leaving Moscow in a surprisingly strong fiscal position.

Failure to include exchange rate dynamics in break-even estimates appears to be pervasive. Much of the burden for improving fiscal break-even estimates lies with those who produce them. They should publish bands of likely break-even prices rather than misleadingly precise point estimates, describe their main sources of uncertainty and explain revisions. They should also juxtapose fiscal break-evens with other indicators, such as fiscal reserves, to provide more accurate pictures.

But the ultimate responsibility lies with users. They should only use fiscal break-even prices fully aware of the assumptions, forces and uncertainties they reflect, and complement them with a much wider set of indicators.

There is a broader lesson here. Before oil prices collapsed, otherwise sophisticated market participants, aiming to factor geopolitics into their oil price expectations, relied on simple assumptions about fiscal break-even oil prices and their role in driving Saudi decision-making. They were badly burnt.

This spreadsheet https://data.imf.org/regular.aspx?key=60214246 from the International Monetary Fund contains their estimates (for what they're worth, but I believe IMF to be pretty credible) for both breakevens for a number of oil exporters.

For 2020, they estimate Saudi Arabia fiscal break-even to be 83.6 and the external break-even to be 55.3. So this part appears to be true.

I've been unable to verify that Russia's fiscal break-even is "less than half of that". There are many claims to that effect in the media, originating from Russian state-owned media, but I don't see anyone explaining where they got this figure. Knowing what we know about Russia's opaque budget, I'm extremely skeptical of this claim. Note that the FT article above mentions $100 as an estimate for Russian's fiscal break-even. According to http://graphics.wsj.com/oil-producers-break-even-prices/ , Russia's fiscal break-even price is $72. That's not less than half.

I'm guessing that Russian propagandists are trying to compare Saudi fiscal break-even with some other, totally different statistic for Russia, such as the cost of production. (See, for example, http://graphics.wsj.com/oil-barrel-breakdown/ ).

Russia has suffered a very humiliating defeat in the oil price war (see, for example, https://www.bloomberg.com/news/articles/2020-04-13/putin-makes-painful-climbdown-as-he-sues-for-peace-in-oil-war ). You can expect the army of paid Kremlebots to pomulgate all sorts of falsehoods in an effort to make Russia's defeat appear less humiliating that it actually was.

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    Since a similar oil production war with Saudi Arabia was probably the main factor in the downfall of the old Soviet Union, it's rather shocking to me that Putin didn't see this coming. In that case (early 1990s), it was less about whether Saudi Arabia was making money at the lower prices vs the fact that, learning from the eventual failure of the 1970s oil embargos, they had specifically built a huge cash reserve to they could outlast anyone else selling the oil at below cost. I don't imagine they changed their approach since then. Apr 13, 2020 at 19:27

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