Saudi state oil giant Aramco reported its latest financial results last weekend. In the report, the company boasted a twofold jump in net profits for 2021, which was hardly a surprise after a year of soaring oil prices.
But the company also reported plans to boost its maximum sustainable production capacity to 13 million bpd, likely sparking optimism about future supply among energy-starved importers in the West, at least according to this Quartz item.
Over the long term, a boost in Saudi oil production capacity would certainly be good news for oil importers. The problem, however, is that these importers are energy-starved now – or rather, they want to avoid being energy-starved if they decide to increase their sanctions on Russia. In this, no help is coming from Saudi Arabia.
The Kingdom has made its stance clear on numerous occasions. The fact that it basically turned a deaf ear on calls from the White House to boost OPEC+ production should have been enough, but it wasn’t. Several more calls, escalating to demands, were made before the White House realized Saudi Arabia wouldn’t budget. And if Saudi Arabia doesn’t budget, neither will the rest of OPEC or OPEC+, which also involves Russia.
Then it was The UK’s turn. Prime Minister Boris Johnson visited both Saudi Arabia and the United Arab Emirates this month, officially to discuss the energy market situation, not so officially to ask for more oil, as this Wall Street Journal report said.
The UK’s Premier, according to a spokesperson, “set out his deep concerns about the chaos unleashed by Russia’s unprovoked invasion of Ukraine, and stressed the importance of working together to improve stability in the global energy market,” the WSJ reported.
His hosts, however, apparently saw things differently. The Wall Street Journal cited unnamed Saudi government officials who said that Johnson had basically left empty-handed. Indeed, the Saudi state news agency said the UK’s Prime Minister had discussed the international geopolitical situation with Crown Prince Mohammed but did not mention oil markets at all.
That the love between the West and the Middle East has cooled recently is not news. It has been a long process. Yet it seems that some in the West have failed to grasp the fact that this process has been unfolding.
President Biden condemned the Saudi Crown Prince for the killing of journalist Jamal Khashoggi but appeared to believe it would not affect bilateral relations. The UK has faced pressure over its arms supplies to Middle Eastern countries, including Saudi Arabia, and more pressure to condemn the Saudi heir for the Khashoggi murder following the example of the White House.
The West, as represented by the US and the UK, has found itself between a rock and a hard place. For all the renewable energy enthusiasm exhibited by politicians on both sides of the Atlantic, oil and gas have continued to be essential to keep the economy going. Of course, this could have been thought about before the two started showering Russia with sanctions, but apparently, things were too urgent to stop and think.
Now, they will be forced to stop and think. Saudi Arabia is boosting its oil production capacity because it firmly believes reports of the death of oil demand are strongly exaggerated. This is good news for importers, and this means all importers. Saudi Arabia is a big supplier to China and India, two of the biggest importers. And it seems to have much better political relations with them. Chances are, Riyadh will prioritize its Asian clients over its Western allies if only to teach the latter a lesson.
It seems the message from Saudi Arabia is already being received. The Wall Street Journal reported this week that Washington had sent “a significant number” of Patriot missile interceptors to Saudi Arabia after yet another missile and drone attack on Saudi targets by the Yemeni Houthis. It could be a signal that the White House has finally got its priorities straight and is being practical instead of moralistic.
By Irina Slav for Oilprice.com
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