What the World Needs Now—Arab Oil, but Gulf States Side with Russia, Capping Output
By: John Mason / Arab America Contributing Writer
Russia’s unprovoked and massive attack on Ukraine has brought all sorts of energy issues to the fore. The war has invoked a friendship between Russia’s Putin and Saudi’s Mohammed bin Salman. This article explains how the war has also caused the Gulf States to join in the fray, by capping their oil production—aimed at keeping prices sky high. All this, as the U.S. tries to walk the line between full blown support of Ukraine in the war and the world’s continuing reliance on oil.
Gulf Arabs hold back on oil output, cashing in on Ukraine war
As the Russian war on Ukraine continues, it is wreaking more and more havoc on the global economy. The war, however, has not affected parts of the Middle East so emphatically. That is because, according to CNN, “Some of the world’s biggest hydrocarbon producers, the Gulf nations are seeing billions of dollars added to their coffers aided by a Ukraine war-driven rally in oil prices.” The Gulf countries are seeing some of their first budget surpluses in years.
CNN reported that Gulf Cooperation Council (GCC) countries may see a GDP spike as high as 6.1% in 2022, based on increased oil prices. These countries include Saudi Arabia, Oman, United Arab Emirates (UAE), Kuwait, Qatar and Bahrain. Gross oil receipts will mount towards $27 billion. Since oil prices had collapsed during the pandemic, the rise in prices resulting from the Russia -Ukraine war has been a boon to the Gulf countries.
While the per barrel price of oil was $22 in 2020, as Russia’s war in Ukraine inflicted more damage, the cost rose to $130 per barrel. That represents a 14-year high. As with any boom of this sort, Gulf oil exporters know that these high prices will predictably drop. As in the past, Gulf countries will try to use current prices to help them diversify to non-petro-dollar production.
For Western countries, the war in Ukraine has sent a clear message that now might be the critical moment to lessen their reliance on hydrocarbons. However, as the war progresses, we see how difficult it is, especially for European countries, to lessen their dependence not only on Gulf oil but on Russia’s plentiful supply. Furthermore, as the UAE Environment Minister noted, “disruptions caused by Russia’s invasion of Ukraine showed that global systems are not ready to fully abandon hydrocarbons.”
Saudi Arabia sides with Russia – refusing to hike oil output
Disappointingly, Saudi Arabia has sided with Russia, the clear aggressor in the war against Ukraine, by refusing to pump up its oil output, thus adding to Russia’s foreign exchange account. That action counters the many, serious economic and financial sanctions placed on Russia by western governments.
According to CNBCTV18.com, just before the war, “As the Russia-Ukraine border continues to remain tense, one of the United States’ foremost allies is refusing to give in to its demands. Despite repeated calls from the US, Saudi Arabia has said no to increasing its oil production, a move that is directly benefiting the Russian state and hurting the American economy.” Since Russia is the world’s second largest producer of oil and the largest supplier of natural gas to Europe, the Saudi and other Gulf countries’ cap on production has only contributed to the excessive price of fuel at the gas pump.
Even the pleas of President Biden to Saudi King Salman to increase its production of crude oil to calm prices in the international market fell on deaf ears. This plea was part of U.S. policy to ensure stability of global energy supplies. So far, Saudi and the 12 other Organization of the Petroleum Exporting Countries members have refused to increase production.
Higher oil prices for Russia mean its economy could better survive the effects of the sanctions placed on it. Simultaneously, however, higher oil prices are forcing record-high inflation not only in the U.S. but worldwide. These higher prices on oil also limit the number of options the U.S. and other cooperating countries have in placing further sanctions on Russia.
Whether Saudi’s choice to support Russia in its cap on production is political or economic, or something of each, at this point should be left to historians. What is clear is that Saudi Arabia and Russia have been cozying up to each other in recent years—a not unnatural situation in that both Putin and MBS are both autocrats. One example is the military cooperation agreement they signed in 2021.
The Russia-Saudi Arabia relationship is something we await to see as it unfolds in the context of the Russian war on Ukraine. The U.S. administration transition from Presidents Trump to Biden seems to have pushed MBS further away from the usual strong U.S. support of the Kingdom towards Russia. As we’ve seen, when it comes to oil, that relationship is critical.
Russian-Ukraine war negatively impacts the non-Gulf Arab region
While Saudi and the Gulf countries were raking in dollars from inflated oil prices, the rest of the Arab world has been debilitated by Russia’s war of choice on Ukraine. As the war progressed, the world has witnessed how dependent a large portion of its population is on the breadbasket comprised of both Ukraine and Russia.
As characterized by U.S. Secretary of State Blinken, in Yahoo news, “Russia’s invasion of Ukraine is having a ‘deadly’ impact and threatening security in the Arab world, particularly through spiraling wheat prices.” Passing through Algeria on his way home, Blinken said that the war was having a direct impact on the lives of North Africans, especially on rising food prices. Since North African countries are so dependent on wheat supplies from both Russia and Ukraine, they are particularly vulnerable.
Blinken further averred, North African nations should stand with “the victim and to stand for the principles that have also been violated.” His visit may have implied that Algeria, while a major gas producer, might have been tempted to respond to calls to raise exports to Europe once prices soared. But Blinken was diplomatic in not raising this issue directly while in country, though he nevertheless wanted to project the U.S. moral and political stance.
So, as we see, when it comes to the world’s energy resources, diplomacy and reality often clash—this is one case where they collide.
Sources
“Middle East oil exporters are cashing in as Ukraine war hits global economy,” CNN, 4/4/2022
“Explained: Why Saudi Arabia is siding with Russia and refusing to hike oil output,” CNBCTV18.com, 2/17/2022
“Ukraine war has ‘deadly’ impact on Arab region: US top diplomat,” Yahoo News, 3/30/2022
John Mason, PhD., who focuses on Arab culture, society, and history, is the author of LEFT-HANDED IN AN ISLAMIC WORLD: An Anthropologist’s Journey into the Middle East, New Academia Publishing, 2017. He has taught at the University of Libya, Benghazi, Rennselaer Polytechnic Institute in New York, and the American University in Cairo; John served with the United Nations in Tripoli, Libya, and consulted extensively on socioeconomic and political development for USAID and the World Bank in 65 countries.
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