WASHINGTON: Saudi Arabia and the United Arab Emirates (UAE) are buying petroleum products from Russia at steep discounts, ignoring US objections, the Wall Street Journal (WSJ) reported on Monday.
Last year, the United States and its Western partners imposed strict sanctions on Russia for invading Ukraine, cutting off Moscow from its traditional trading partners. This has forced Russia to sell its products at much cheaper rates.
“The Gulf countries, especially the UAE, have also become key storage and trading hubs for Russian energy products that can’t be as easily shipped around the globe because of the war.”
The price cut has benefitted some energy-starved nations, such as India, but the Russians have also found “eager trade partners in an unlikely place: The oil-rich states of the Persian Gulf,” WSJ reported.
“Despite US objections, the Gulf countries are using the discounted Russian products internally, including for consumption and refining purposes, and exporting their own barrels at market rates, boosting their profits,” the report added.
The report described the development as a “counterintuitive shift,” allowing countries with the world’s largest oil reserves to buy cheap Russian oil and sell it at higher prices.
This was “an illustration of the unexpected consequences of Western sanctions and another example of the US’s waning influence over the Middle East,” the newspaper noted.
But the newspaper noted that so far there were no signs that the Gulf countries were “turning off the spigot of Russian oil. The report pointed out that Saudi Arabia was pursuing a nationalist energy policy that tool precedence over US concerns.
According to the report, Russian oil exports to the UAE more than tripled to a record 60 million barrels last year. But exports to Singapore, Russia’s traditional trading partner, only rose 13 per cent to 26 million barrels in 2022. Russian gas oil now accounts for more than one in 10 barrels of the product stored in Fujairah, the UAE’s main oil-storage hub, second only to Saudi Arabian gas oil.
Russia is shipping 100,000 barrels a day to Saudi Arabia or more than 36 million barrels annually, compared with virtually none before the Ukraine war.
WSJ reported that the Saudi and Emirati trade in Russian oil and fuel products has irked US officials, who see it as undermining Western efforts to force Russia to leave Ukraine. US Undersecretary for Treasury Brian Nelson toured the Middle East in February to try to persuade countries such as Saudi Arabia, the UAE, and Turkey to enforce the Western sanctions against Russia.
An Emirati official, however, told WSJ the country abides by United Nations sanctions and has “robust processes in place to deal with sanctioned entities.” But the UAE “will continue to trade openly and honestly with its international partners,” the official added.
The report also noted that earlier this year, Saudi and its allies announced an oil production cut aimed at boosting prices, ignoring US objections that higher prices aid the Russian war machine. WSJ also pointed out that Dubai and other emirates have become an international hub of choice for many Russian companies and wealthy individuals seeking to run their businesses and avoid Western sanctions. Because of price caps and other sanctions, Russia’s flagship Urals crude has typically traded at a discount of over 30pc to benchmark Brent in recent months.
On March 12, Saudi national oil company Saudi Arabian Oil Co, or Aramco, reported record annual profit of $161 billion for 2022, the largest ever by an energy firm. That included a 27pc boost to profits for the state-run giant’s refining unit.
Elshan Aliyev, head of the Mideast Gulf product department at Argus told WSJ that Gulf countries already had abundant refined products such as naphtha, fuel oil and diesel.
“So, the only reason for importing from Russia is to capitalise on the price difference,” he said. Russian naphtha and diesel respectively sell $60 and $25 a ton below their equivalent produced in the Persian Gulf. The report noted that in 2022, Saudi Arabia ramped up its diesel exports to France and Italy, two countries that previously relied largely on Russia for their motor fuel.
Published in Dawn, April 18th, 2023