2023-04-19 08:40:00
Following the sanctions imposed by the United States and the European Union since the beginning of the war, Russia had to seek other countries to buy the fuel it produces. To attract new buyers, it reduced the price of its fossil fuels. Historically, the European Union has been the main buyer of Russian oil. In December 2022, a maximum price of $60 per barrel from the Urals was imposed on imports to Europe to reduce Putin’s profit on crude oil sales and, therefore, crude oil imports from the Kremlin to Europe fell sharply.
Sanctions against Russia made Moscow’s oil on average 22% cheaper than OPEC’s price per barrel in April 2023. Thus, Saudi Arabia and the United Arab Emirates are importing coveted Russian black gold at exorbitant prices. Despite being two of the world’s leading oil producers, both countries decided to take advantage of the Kremlin selling fuel at a lower price to meet their own domestic demand.
According to Archyde.com, Saudi Arabia imported 647,000 tons (48,000 barrels per day) of oil from Russia, twice as much as in 2021. In summer, during the hottest period, the Gulf country needs large amounts of energy to meet the needs of air conditioners.
The Joint Organizations Data Initiative (JODI) reports that in Saudi Arabia, the volume of crude oil flared is approximately 600,000 barrels per day during the summer months and 300,000 barrels per day during the winter months. Similarly, Fujairah, an oil hub located in the United Arab Emirates, has received 1.17 million tons of Russian oil since the start of the year, compared to 0.9 million tons during the same period in 2021.
Last March, Saudi Arabia imported about 200,000 barrels per day from Russia. Thus, despite Western sanctions, the rich Gulf countries benefit from the fall in Russian prices, but also from the rise in fuel prices. Similarly, China took advantage of these cuts and became the world’s largest importer of Russian oil.
On the other hand, Russia and Saudi Arabia have announced they will cut oil production by 500,000 barrels per day from May until the end of the year. Other OPEC countries, such as Kuwait and the United Arab Emirates, have also joined this initiative. This will cause gasoline and diesel prices to rise worldwide. OPEC+ brings together the 23 largest oil producers and is led by Saudi Arabia and Russia. These 23 countries together control more than half of world oil production and therefore world oil prices.
Although Russia does not produce as much oil as before due to sanctions, the high prices allow it to make a profit although it sells its oil cheaper than OPEC.
While during the pandemic oil prices dropped significantly due to demand shortages, OPEC+ decided to continue production from 2021, but at a slower pace. Thus, as supply decreases, prices are likely to increase. With the war in Ukraine, prices rose again. According to the IMF, in 2023, OPEC countries in the Middle East and North Africa will receive 3.2 billion more profits than expected. OPEC has predicted that global oil demand will increase in 2023, mainly due to improving economic conditions in China.
A significant increase in oil prices will cause large-scale inflation to rise and could slow down the global economy. On the other hand, tensions could increase between the United States and the Gulf states, as US President Joe Biden has called on Saudi Arabia and other allies to increase production in order to lower prices, which which would reduce Russia’s profits and curb inflation.
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