The partnership of Russia and Saudi Arabia could be the final blow against the United States-led energy-related-sanctions against Russia, triggered by the war in Ukraine.
The two oil giants, Russia, third-ranking crude producer, and Saudi Arabia, second, in partnership, are making big waves in the global oil market, triggering massive market shifts from the European Union to the Middle East. It may be a dark winter for the EU.
Saudi Arabia’s imports of cheap crude from Russia have doubled since the start of the Ukrainian war — 647,000 tons from April to June 2022, almost twice the 320,000 tons of last year in the same period (Source: Reuters) Saudi Arabia uses cheap Russian oil for its domestic energy consumption, especially much-needed electricity generation. At the same time, it uses its own crude for export to the global oil market at soaring prices. The Saudi Arabia-Russia partnership has opened the door for other Middle East countries to avail of Russian crude.
The Saudi-Russia initiative has thus resulted in Saudi’s steady supply of crude, ensuring export prices can remain high; at the same time, Russia is able to skirt around the sanctions and boost its economy with cheap crude exports even in a time of an expensive war in Ukraine. It is a win-win for both of them.
Russia blames the sanctions as the culprit wherein EU nations are mandated to boycott Russian crude. Russian crude exports to the EU slipped by 30 percent in June 2022. (Source: Bloomberg) The sanctions, in truth, handed a knife for the EU to slit its own energy throat. The sanctions are beginning to backfire and have become a tool for an EU energy crisis and for the strengthening of Russian exports.
Russia may perhaps be losing the battlefield in Ukraine against US-NATO, but it is winning the “gas war” against US-EU. This has enhanced the looming global recession. Germany, the largest economy in the EU, with 40 percent of energy coming from Russia, will mainly lose its gas supply from NORD 1, down to a trickle of 20 percent, triggering recession further. There are no known immediate energy replacement sources in the short term. The fall of Germany, largest economy in the EU, will result in an EU-wide “recession epidemic,” which in turn will enhance a global-wide recession. In the ensuing “gas war,” recession is a powerful geopolitical tool, more than a hypersonic missile.
As a result, NATO unity is now somewhat weakening, due to EU NATO-member countries becoming victims of the sanctions, especially Germany and Italy. When the energy crisis becomes nastier, these victims may either quit NATO, or force the lifting of the sanctions. Quitting is highly unlikely because they lose the military umbrella cover of NATO. Lifting the sanctions is perhaps possible if the victims unite, but the US will surely resist, especially due to loss of face and leadership. But the situation is reaching breaking point.
Organization of the Petroleum Exporting Countries Plus, meaning including Russia, will meet early August to address whether to produce more or produce less oil for the world market. US President Joe Biden visited Saudi Arabia recently. Saudi politely said it is up to OPEC Plus to do so.
The war in Ukraine is seeing the evolution of key geopolitical events, namely, the global oil market shifting away from the West (US-UK-EU) and toward the Middle East (Arab nations) and the East (China); massive proliferation of deadly sophisticated weapons, akin to the wild, wild west where everyone carries a gun; the threshold of a global recession moving toward a global economic meltdown whose casualties are predicted to be greater than a nuclear war or World War III; and the advent of a deadly World War III triggered by a nuclear war originating in Ukraine.