Saudi Arabia and Russia, pillars of the OPEC+ oil cartel, stand together in their refusal to open the floodgates of oil wide, despite numerous calls to curb price volatility.
The thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their ten partners led by Moscow meet on Thursday to make their traditional monthly update on production.
Prices have soared several times since the start of the Russian invasion, brushing on March 7 the historical records of the two black gold benchmarks (US$139.13 per barrel for Brent from the North Sea, and 130. 50 for US WTI).
On Tuesday, prices lost more than 5%, in reaction to the progress announced in the negotiations between Ukraine and Russia, a sign of their extreme feverishness. But OPEC+, an alliance that was created in 2016 to regulate the market, should not deviate from its strategy of modestly opening its taps, according to analysts.
“The war in Ukraine reminds the world that we are still dependent on OPEC+ to ensure the planet’s energy supply,” said Edward Moya, analyst at Oanda. Both Riyadh and Moscow are taking advantage of this, ignoring the warnings of G7 countries which recently called on producing countries to increase their deliveries, insisting on “the key role” of the cartel in regulating energy prices.
The International Energy Agency also asked to be “on the safe side”, hoping that Thursday’s meeting will “relieve” the market.
The war in Ukraine reminds the world that we are still dependent on OPEC+ to ensure the planet’s energy supply
More than any other member of the cartel, the Saudis, the world’s largest exporters of crude, “have little incentive to increase production, as they benefit from high oil prices and strong demand”, notes expert Edward Moya.
“Holding the world hostage”
Also, they don’t want to alienate Russia. Far from the considerations of a very tense market, a sharp increase in volumes would be a political decision, namely that of siding with the White House.
“In the midst of the Russian-Ukrainian war, any measure aimed at ensuring that Russian oil is no longer a weapon in the hands of Putin would be perceived in Moscow as a provocation”, explains to Agence France-Presse Philippe Sébille- Lopez, director of Geopolia, specialist in geopolitical energy issues.
Conversely, through his wait-and-see posture, Crown Prince Mohammed bin Salman allows Russia “to keep the importing world [d’énergie russe] hostage”, abounds Stephen Innes, analyst at SPI Asset Management.
Moscow is “relying heavily on using its influence, mainly through its oil and natural gas supplies, to negotiate with the West” and cushion the blow of sanctions, says Walid Koudmani, an analyst for XTB.
If the United States, joined by other nations like the United Kingdom, have decreed an embargo on Russian hydrocarbons, this is indeed not yet the case of the Old Continent, which is much more dependent.
Shifting loyalty
In reality, the war in Ukraine “exposes the cracks in the long-standing partnership between Saudi Arabia and the United States,” Innes said.
Riyadh has so far avoided taking a stand against Russia, not publicly condemning the invasion, while reiterating its commitment to the OPEC+ alliance. And his strategy on the oil component “could be interpreted as a change of loyalty from the United States to Russia”, continues the expert, interviewed by AFP.
During his campaign, US President Joe Biden had vowed to treat the kingdom as a “pariah” state after the murder of Saudi journalist Jamal Khashoggi, who was killed and dismembered in Istanbul in October 2018.
But for Stephen Innes, the heart of the problem is above all Iran, a sworn enemy of Saudi Arabia, while Washington is engaged in negotiations with Tehran to rejoin the Iranian nuclear agreement. Discussions “not necessarily well received by the Saudis”, notes Bjørnar Tonhaugen, at Rystad Energy.
The removal of Yemen’s Houthi rebels, close to Iran, from the US blacklist of “terrorist organizations” has also strained relations.
Long a close partner of Ryad, the American administration has gradually distanced itself from this conflict.
“The crown prince may be recklessly siding with the Kremlin, hoping that Russia will support him if Iran and the Saudis re-engage in open conflict,” Innes said.