By supporting the price of crude oil on the world markets, the Gulf oil countries, led by Saudi Arabia, are not only sparing their Russian partner but also defending their own interests, according to
analysts.
The 13 members of the Organization of the Petroleum Exporting Countries (Opec) led by Riyadh, and their ten allies led by Moscow (Opec+), announced this week a drastic cut in their production, raising fears of a new surge in prices after the lull of recent weeks.
Accused of playing into the hands of the Kremlin, which seeks to finance its war in Ukraine, the Saudi Minister of Energy, Prince Abdel Aziz bin Salmane, invoked the “uncertainties” hovering over the global economy and the need to anticipate in order to “stabilize the market.
“This reduction gives the group more reserve capacity that can be used later to rebalance the markets,” says Amena Baker, an oil market specialist at analyst firm Energy intelligence.
Since the beginning of the Russian invasion of Ukraine, the alliance’s decisions have kept oil prices volatile compared to gas or coal prices, she adds.
Despite the peaks reached by black gold since the beginning of the war, the cartel has resisted calls from the West to open the floodgates, citing limited capacity due to lack of investment in recent years.
With most member countries already producing below their quotas, the cuts announced will be borne mainly by Saudi Arabia, the United Arab Emirates and Kuwait, which are no doubt hoping to make up for the shortfall by a recovery in prices in the coming months.
– Ignoring American interests –
But to control supply, they must preserve the agreement between the main producing countries, especially Russia, even if it means ignoring the interests of Washington, another key partner of the Gulf States, to bring down prices at the pump before the mid-term elections.
“The Saudis may not support the war in Ukraine, but they don’t want to lose the cooperation of the Russians in the market,” points out Jim Krane of the Baker Institute at the University of Houston in the US.
The objective of the Gulf States is to maintain a certain stability in prices and to avoid a sudden drop in prices, according to researcher Karen Young, of the Center on Global Energy Policy at Columbia University.
The economies of the Gulf Cooperation Council – including Arabia, the Emirates, Kuwait, Qatar and Bahrain – have suffered from the collapse of prices during the pandemic, having already suffered declines in the markets since 2014.
These states are expected to grow by 6.9% this year, before slowing to 3.7% in 2023, according to the latest World Bank forecast.
– Unexpected opportunity –
The additional revenue generated, which could exceed $1 trillion by 2026 according to the International Monetary Fund (IMF), is a way for the region’s leaders to prepare for the future.
“Oman is buying back some of its debt (…), Saudi Arabia is building up reserves to support its development projects, the Emirates are building up savings to invest abroad and in strategic assets in the region,” says Karen Young.
According to Bloomberg, the Saudi sovereign wealth fund invested $7 billion in the stock market in the second half of the year, acquiring shares in American flagships such as Amazon, Alphabet, and BlackRock.
Oil-producing countries, which feel they have been ostracized in recent years in the fight against climate change, see the energy crisis as an unhoped-for opportunity to restore hydrocarbons to their rightful place.
Last month, the boss of Saudi giant Aramco, Amin Nasser, called for increased global investment in fossil fuels, criticizing “unrealistic” energy transition targets.
But, in the long run, it is not in the interest of the Gulf countries to defend prices that are too high, at the risk of accelerating the adoption of alternative energies, a “frightening scenario”, underlines Jim Krane, especially for Saudi Arabia which, “at the current rate, can produce for 75 years”.
