Released March 23, 2022 | SUGAR LAND
en
Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Germany is trying its hand at energy diversity by courting the Middle East's oil giants, though any move by those producers to jockey for new positions in the evolving geopolitical landscape is fraught with risk.
Western powers are looking to see which producers, if any, can fill the supply-side gap that resulted in the near-universal isolation of Russia. The February 24 military incursion in Ukraine was met with severe sanctions on Russia, and everyone from traders to shippers are wary of getting stuck in a financial trap by dealing in their fuels.
German Economy Minister Robert Habeck said he was now concerned that Middle Eastern producers in the Organization of the Petroleum Exporting Countries (OPEC) were capitalizing on the geopolitical risk premium that is holding oil prices above $100 per barrel, to the detriment of Western economies.
"I'm not asking that they join the sanctions ... but I ask (them) not to be a profiteer of European and U.S. sanctions," Habeck was quoted by Reuters, on Monday in Abu Dhabi. "We haven't talked about oil except OPEC. In this respect, the appeal is that the production volume be increased in such a way that the people of the world can pay for this oil as long as we need it."
For the U.S. economy alone, soaring energy prices helped push annual inflation to highs not seen in 40 years. The U.S. economy, however, is not as vulnerable to supply-side disruptions from Russia as the European economy. Europe gets about 30% of its oil from Russia, while the U.S. economy gets only a few thousand barrels per day, at most.
But despite the level of dependency, the global market is interconnected and disruptions, whether real or perceived, in one part of the world can have profound impacts on distant shores. For example, even though the U.S. is one of the world's leading producers of oil and natural gas, retail gasoline prices are a growing concern for political leaders. That's because retail gasoline prices are influenced by the price of oil on the global market.
Concerned about rising prices on the European continent, the French government suggested there could be some social welfare plans in the works to offset mounting costs.
In some ways, the interconnected global nature of the market parallels national power. Russia, for example, has pulled off a coup of sorts by seating itself at the OPEC table, gaining tacit control over prices and volatility.
OPEC's founding charter states that members "shall devise ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations."
That line would suggest producers should be putting more oil on the market to offset what could be considered "harmful and unnecessary" conditions. But member states at their most recent meeting suggested that many of the factors that were propping up the price of oil were non-tangible, such as fear and contagion, that can't be offset by barrels alone.
Yet, $100-per-barrel crude oil may be tempting in more ways than one.
In normal circumstances, an elevated price point would incentivize producers to go chasing demand, but these are not normal circumstances. In these circumstances, dependency allows for oil and natural gas to be weaponized.
Enter Saudi Arabia, one of the few oil producers that can address lingering supply-side issues with any sort of immediacy. The young crown prince, Mohammed bin Salman, has managed to stay relevant despite a dismal human rights record and his association with the gruesome October 2018 slaying of Washington Post columnist Jamal Khashoggi.
In a recent article in The Atlantic, the young prince effectively snubbed the U.S. by saying he was not concerned about what Washington thought of him. Pleas from the West for more oil, meanwhile, have been effectively ignored.
Like Russia, Saudi Arabia may see opportunity in the current geopolitical landscape, hoping to exploit the growing fissures between the West and the rest by using energy as leverage.
In international relations, a state has two options--strive for ascendency or defend one's current standing. Pursuing either course requires a deep understanding of one's position in the world. Too much ambition can trigger an overwhelming counter-response for the other players, a position that Russia finds itself in now.
Will Saudi Arabia follow suit?
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
Western powers are looking to see which producers, if any, can fill the supply-side gap that resulted in the near-universal isolation of Russia. The February 24 military incursion in Ukraine was met with severe sanctions on Russia, and everyone from traders to shippers are wary of getting stuck in a financial trap by dealing in their fuels.
German Economy Minister Robert Habeck said he was now concerned that Middle Eastern producers in the Organization of the Petroleum Exporting Countries (OPEC) were capitalizing on the geopolitical risk premium that is holding oil prices above $100 per barrel, to the detriment of Western economies.
"I'm not asking that they join the sanctions ... but I ask (them) not to be a profiteer of European and U.S. sanctions," Habeck was quoted by Reuters, on Monday in Abu Dhabi. "We haven't talked about oil except OPEC. In this respect, the appeal is that the production volume be increased in such a way that the people of the world can pay for this oil as long as we need it."
For the U.S. economy alone, soaring energy prices helped push annual inflation to highs not seen in 40 years. The U.S. economy, however, is not as vulnerable to supply-side disruptions from Russia as the European economy. Europe gets about 30% of its oil from Russia, while the U.S. economy gets only a few thousand barrels per day, at most.
But despite the level of dependency, the global market is interconnected and disruptions, whether real or perceived, in one part of the world can have profound impacts on distant shores. For example, even though the U.S. is one of the world's leading producers of oil and natural gas, retail gasoline prices are a growing concern for political leaders. That's because retail gasoline prices are influenced by the price of oil on the global market.
Concerned about rising prices on the European continent, the French government suggested there could be some social welfare plans in the works to offset mounting costs.
In some ways, the interconnected global nature of the market parallels national power. Russia, for example, has pulled off a coup of sorts by seating itself at the OPEC table, gaining tacit control over prices and volatility.
OPEC's founding charter states that members "shall devise ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations."
That line would suggest producers should be putting more oil on the market to offset what could be considered "harmful and unnecessary" conditions. But member states at their most recent meeting suggested that many of the factors that were propping up the price of oil were non-tangible, such as fear and contagion, that can't be offset by barrels alone.
Yet, $100-per-barrel crude oil may be tempting in more ways than one.
In normal circumstances, an elevated price point would incentivize producers to go chasing demand, but these are not normal circumstances. In these circumstances, dependency allows for oil and natural gas to be weaponized.
Enter Saudi Arabia, one of the few oil producers that can address lingering supply-side issues with any sort of immediacy. The young crown prince, Mohammed bin Salman, has managed to stay relevant despite a dismal human rights record and his association with the gruesome October 2018 slaying of Washington Post columnist Jamal Khashoggi.
In a recent article in The Atlantic, the young prince effectively snubbed the U.S. by saying he was not concerned about what Washington thought of him. Pleas from the West for more oil, meanwhile, have been effectively ignored.
Like Russia, Saudi Arabia may see opportunity in the current geopolitical landscape, hoping to exploit the growing fissures between the West and the rest by using energy as leverage.
In international relations, a state has two options--strive for ascendency or defend one's current standing. Pursuing either course requires a deep understanding of one's position in the world. Too much ambition can trigger an overwhelming counter-response for the other players, a position that Russia finds itself in now.
Will Saudi Arabia follow suit?
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
