American President Joe Biden was in Saudi Arabia a few weeks ago. His prime objective was to get the powerful Organisation of the Oil Producing Countries (Opec) to increase its oil output so that global crude prices could be lowered.
Saudi Arabia told Biden that any decision to raise oil output would be taken by Opec+ collectively as an organisation, which means Opec and Russia. Saudi Arabia and Russia are oil-rich partners. Saudi Arabia is the world’s second-largest oil producer, while Russia is at third place.
Interestingly, Riyadh, as reported, has doubled its oil imports from Russia since the war in Ukraine began. As a result, Russian oil, which earlier used to go to Europe, is now finding its way into the Middle East.
As per the official Saudi stance, the hike in oil imports has a lot to do with power-generation purposes in the kingdom. Saudi Arabia, as is known, remains one of the countries that rely on oil for electricity generation. It is importing cheap Russian oil for domestic usage while exporting its oil to the world at higher prices, allowing it to free up more oil for exports at inflated prices. This is a smart move.
Europe has been avoiding direct purchases of Russian oil. According to Bloomberg, Europe’s Russian oil imports slipped by 30 per cent between February and June this year. During the same period, the Middle East’s intake of Russian oil increased dramatically. Saudi Arabia helped Russian oil find alternative markets in the Gulf.
How is it happening? By purchasing Russian oil, Saudi Arabia ensures it frees up its oil for export without necessarily increasing output, which means the supply will not be able to fix the demand. However, the subsequently announced increase in production (Aug 3) is 1.1pc, which is not enough to normalise the prices globally.
In comparison, Riyadh earns handsome windfalls due to an apparent global oil supply crunch that has hiked prices. Russia gets to keep its economy running due to its oil finding new markets in Asia, Africa, and the Middle East. The economic strategies of the modern world need to be learned in order to survive and thrive as a nation. This is a lesson we would do well to learn.
SARMAD HASHIM
MATLI
