When the China-brokered deal between arch-rivals Iran and Saudi Arabia was announced on March 10, it took the world by surprise. With China beginning to play an increasingly assertive and overt role on the regional and global geopolitical stage, the announcement also indicated a new global order was taking shape.
Besides a major geopolitical move, the announcement of a rapprochement between Iran and Saudi Arabia carries crude implications too. The deal could mean a more potent and stronger Organisation of the Petroleum Exporting Countries (Opec) plus.
Differences between the two major oil producers have marred a number of Opec ministerial meetings, insiders know and concede. Often their interests clashed, resulting in heated arguments behind closed doors in Opec meetings. And though both understood the importance of the Opec and its necessity for their own interests, they were often seen in opposite camps.
The animosity between the two major oil producers has impacted Opec’s cohesion and smooth working. However, that phase could soon be over, some now feel.
The deal between Riyadh and Tehran and their alliance with Russia and China may result in higher oil import bills
And despite the war on Ukraine and the pressure on Riyadh to openly side with the West, the Russian-Saudi bonhomie on the crude horizon continues to flourish.
The two countries understand the importance of close liaison to promote ‘stability’ in the crude oil markets. Recently Russia’s Deputy Prime Minister Alexander Novak met Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman and discussed “oil markets and efforts of the Opec+ group to promote market balance and stability,” the Saudi Press Agency reported.
Not yielding to the pressure to open their crude taps, the leaders of the two largest oil-producing countries also “stressed their commitment to the decision made by Opec+ last October to reduce output by two million barrels a day until the end of 2023.”
Despite falling oil prices in recent weeks, the commitment by the world’s two major oil producers to keep a tight leash on global oil output was a definite signal to the market; the Opec+ was determined to keep a floor under the crude market prices.
Earlier, in a talk with Energy Intelligence, the Saudi energy minister had also made it clear that the Kingdom would not sell crude to any country that imposes a price ceiling on its oil exports. The posturing against potential oil price ceilings followed consultations between Russia and Saudi Arabia.
Saudi Arabia also warned; besides halting supplies to countries that adopt a price cap on crude imports from Saudi Arabia, Riyadh would also “reduce its oil production”. Prince Salman bin Abdulaziz also openly indicated he “would not be surprised if other oil exporters do the same.” That was a clear warning to western stakeholders against the policy of price caps on oil.
And in the meantime, as per Bloomberg, Saudi Arabia is importing millions of barrels of diesel from Russia ‘despite having more than enough of its own.’ Riyadh imported almost 2.5m barrels of diesel-type fuel from Russia in the first 10 days of March, far more than at any other time in the last six years, according to Kepler data compiled by Bloomberg.
The move appeared to provide a significant financial cushion to Russia at a time when western powers were attempting to dry the earnings of Russia from its crude and fuel products exports.
Interestingly, Riyadh was importing Russian fuel products and, at the same time selling considerable amounts of fuel to Europe. The flows also show how the global energy trade is being rerouted in the wake of sanctions on Russian supplies.
A new ‘crude’ bloc involving Russia, Saudi Arabia, Iran and China is emerging, apparently at a cost to the US and the West. And crude oil is playing an important role in glueing together these four important global stakeholders in the energy world.
The developments carry ramifications for Pakistan too. The mending of fences between Riyadh and Tehran and their crude alliance with Russia and China could also mean higher oil import bills for Pakistan — already faced with a precarious economic condition.
On the geopolitical front, as well, Pakistan could soon be faced with a dilemma.
With Islamabad’s major allies, Beijing, Riyadh, and Tehran along with Mosccow joining hands, it may be tricky for Pakistan to neglect and stay away from this emerging bloc.
For Islamabad, a decision time could be approaching.
Published in Dawn, The Business and Finance Weekly, March 27th, 2023