Page 5 - MEOG Week 21 2022

MEOG COMMENTARY MEOG

producers. The group, which had already been closed over the last few years. The world is run-
collaborating to manage the market since 2016, ning out of energy capacity at all levels.”
took nearly 10mn barrels per day (bpd) of crude Meanwhile, Saudi has said it can and will do
oil capacity effectively offline in April 2020 in no more for the oil market, reiterating that firstly
response to the dual threats of the pandemic and the market is in balance and secondly that other
collapsing prices. producers must invest in increasing capacity.
This gave Saudi and Russian oil production
quotas level pegging, though the economics of Outreach
the two production slates have contracted sig- Perhaps feeling the urgency to act and with
nificantly and the quotas have little grounding apparently no end in sight to conflict in Ukraine,
in reality. the US continues to work in the shadows to bring
The deal – and the highly conservative Saudi and its neighbours back into Washington’s
approach to returning barrels to the market – sphere of influence.
saw crude oil prices recover from multi-year The strategic Red Sea islands of Sanafir and
lows in 2020 and rise by more than $50 per barrel Tiran are reportedly close to being reassigned
in the last 12 months, bolstering state coffers and from Israeli to Saudi control as part of a quid pro
making ambitious plans for energy transition a quo that could eventually see Riyadh sign up to
reality. Meanwhile, given the disastrous impact the Abraham Accords.
of the last oil price war (Q1 2020) between Russia Speaking at the World Economic Forum in
and Saudi, Riyadh’s reticence to turn its back on Davos this week, Saudi Foreign Minister Prince
Moscow is unsurprising. Faisal bin Farhan said: “We have always seen
However, OPEC and its partners have strug- normalisation as the end result for a path. Nor-
gled to hike output in line with 10 consecutive malisation between the region and Israel will
months of 400,000-bpd+ quota increases and bring benefits but we won’t be able to reap those
as finding buyers for Russian crude becomes benefits unless we are able to address the issue
harder and the agreement due to be unwound of Palestine.”
by September this year, the end of Q3 may be a Meanwhile, despite a recent war of words
major turning point. between Saudi and Kuwait and Iran over their
That being said, status quo is the name of the clashing views on a shared offshore gas field, the
game for OPEC and despite agreeing last year to prince said: “Our hands are stretched out. We are
increase quota levels by a combined 1.6mn bpd trying to send the message that going into a new
– largely to placate the ambitious Emirates – just era of co-operation in the region can deliver ben-
32,000 bpd was added over and above the cus- efits for all of us,” noting that the signing of the
tomary 400,000 bpd hike. Chances that OPEC+ Joint Comprehensive Plan of Action (JCPOA)
will repeat such a manoeuvre to at least main- would be an important “sea-change” for the
tain the mirage of market control should not be region.
overlooked. For its part, Iran too has spoken of its willing-
Meanwhile, as European and American lead- ness to continue negotiations, with neighbour-
ers blame supply chain issues and price increases ing Iraq acting as both host and moderator for
on Russia President Vladimir Putin’s own expan- the talks. A breakthrough in talks between Saudi
sionism – or as he sees it, defence against that Arabia and Iran appears a somewhat distant
of Nato – the Saudis have taken a more prag- prospect – perhaps made even more distant by
matic approach, highlighting years of underin- a potential normalisation of Saudi relations with
vestment in global oil and gas exploration and Israel – and improved ties in the Eastern Medi-
production and refining capacity as the causes terranean could cross paths with Iran’s crescent
of fuel shortages and high prices. of Shia influence. However, there is equally little
Energy Minister Prince Abdulaziz bin Sal- trust in Tehran for the US.
man said earlier this month: “The bottleneck For Saudi, the jury is still out on how far it
is now to do with refining. I did warn this was feels the dial has moved and whether a potential
coming back in October. Many refineries in the realignment with the US is worth compromising
world, especially in Europe and the US, have on potential oil revenues.™

Week 21 25•May•2022 www. NEWSBASE .com P5