With crude oil fortunes on an upswing, Saudi Arabia – the world’s largest crude producer – is playing its cards very well.
The crude oil markets have been transformed, with prices starting in 2022 at US$75.69 and now trading at around US$115 a barrel. That’s a gain of just over 50 per cent so far this year. And the upward flight continues.
Some observers believe oil prices will continue to rise as the summer driving season arrives.
This may not be good news for consumers, but it’s a windfall for Saudi Arabia, the oil kingdom. The Saudi oil giant Aramco reported a profit jump of more than 80 percent last week.
After its dismal performance the past few years, Aramco’s net income rose 82 per cent to US$39.5 billion in the first three months of this year, up from US$21.7 billion over the same period last year. With a market cap of around US$2.43 trillion on Wednesday, Aramco last week surpassed Apple to become the world’s most valuable company, Reuters reported.
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Saudi Arabia doesn’t appear ready to budge despite pressure to open its crude taps. It’s striving to drive a hard bargain with the world powers, particularly the United States, before moving from its position. The country is using its status as the world’s leading crude oil exporter to apparently get Crown Prince Mohammad bin Salman recognized by the U.S. as the leader of Saudi Arabia.
Bin Salman is using the nation’s oil prowess to pressure U.S. President Joe Biden to mend ties with the oil kingdom, in the wake of the killing of Saudi journalist Jamal Khashoggi.
The Saudis are also trying to stay on good terms with Russia and President Vladimir Putin, Biden’s nemesis, by avoiding to take a clear-cut position on Ukraine. They are also not ready to push Russia out of the Organization of Petroleum Exporting Countries and its partners in the OPEC+.
Last week, Saudi Energy Minister Abdulaziz bin Salman underlined that Russia is an important and integral part of the group. He said OPEC+ is not a platform “for moral, ethical and political issues; when it comes to OPEC, we have managed to compartmentalize our political differences for the last 35 years.”
Underlining that Russian oil output is crucial to global energy security, the minister noted that Russia produces about 10 million barrels of oil a day, about 10 per cent of global consumption, and so is a major contributor to the global crude oil supply chain.
The United Arab Emirates, the other country with some spare oil production capacity and a close associate of Saudi Arabia in OPEC+, has also insisted that Russia will always be a part of the group, even as governments across the globe shun Russia over its war in Ukraine.
Speaking to CNBC on Monday, U.A.E. Energy Minister Suhail Al Mazrouei said no other country could match Russia’s energy output. He argued that politics shouldn’t distract the group from efforts to manage energy markets. “OPEC+, when they (crude consumers) speak to us, they need to speak to us including Russia,” he said.
And despite America’s uneasiness, the Saudis continue to cultivate a relationship with China. In a phone call earlier this year with Prince bin Salman, President Xi Jinping reaffirmed that China would continue to buy oil from Saudi Arabia. In March, the Wall Street Journal reported that discussions were underway for Saudi Arabia to sell oil to China in yuan rather than U.S. dollars.
The war in Ukraine could push the Saudis and Chinese even closer. That relationship hit new levels earlier this year when the two countries announced plans to deepen their defence collaboration to a “practical co-operation” level.
The Saudi policy of strengthening ties with Russia and China has helped increase pressure on Biden. The U.S. seems likely to cave in, as it did when it permitted India to buy oil from Russia.
Members of the U.S. Congress called on Prince bin Salman in Jeddah last week to discuss bilateral relations between the two countries. Reports say the U.S. is getting ready to recognize Prince bin Salman as the de facto leader of the oil kingdom, despite his Khashoggi connection.
Biden is apparently considering visiting Saudi Arabia as part of his trip to the Middle East at the end of June. This means meeting Prince bin Salman in person for the first time.
So the Saudis have played their crude oil cards well.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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