War in Ukraine: Security, trade and oil

Dr. Angelos Kaskanis
Dr. Angelos Kaskanis

Project Manager - Tactics Institute

While the US was seeking to generate international support for Ukraine and contain a jump in oil prices, the White House tried unsuccessfully to organize calls between US President Biden and the de facto presidents of Saudi Arabia and the United Arab Emirates.

The monarchies of the Persian Gulf have so far refused to raise oil output, instead, prioritising their own strategic and economic interests. Both Saudia Arabia and the UAE are often regarded as the only worldwide suppliers that have the capacity to increase oil production, but it is unlikely that they would be able to make up for Russian exports.

Justifying their decision, both countries claimed they will stick to the present production schedule authorized by Opec+, the Organization of Petroleum Exporting Countries and a group of allies led by Russia.

“Today, we’re going through a stress test, but I am confident that we will get out of it and get to a better place,” stated Yousef Al Otaiba, the UAE ambassador to the US.

Before the commencement of the war in Ukraine, Caracas, Riyadh and Tehran would have been unlikely sources of oil relief for a Biden-led Western coalition.

Strained ties

Relations between the United States and Saudi Arabia have deteriorated during the Biden administration, due to disagreements about American policy in the Gulf region.

Saudia Arabia wants more support with its intervention in Yemen, help with their own civilian nuclear program as Iran’s moves ahead, and legal immunity for Prince Mohammed bin Salman (MBS), who is facing mulitple lawsuits in the US, including over the murder of Saudi journalist Jamal Khashoggi in 2018.

The UAE shares Saudi concerns about the restrained US response to recent missle strikes by Iran-backed Houthis in Yemen. The UAE is also concerned about the revival of the Iran nuclear deal, which has so far failed to deal with the Emiratis’ security concerns.

Yet, President Biden promised to take a much tougher line, demanding “accountability” for Khashoggi’s death, as well as the humanitarian crisis in Yemen. While the MBS leads the country with his father’s consent, Biden has reiterated his intent to bypass the crown prince and deal only with his father, King Salman.

Europe’s oil dependency

The rejection of Russian oil, according to Russian Deputy Prime Minister Alexander Novak, would have “catastrophic ramifications for the global market”, forcing prices to more than quadruple to $300 a barrel. “We are concerned by the discussion and statements we are seeing regarding a possible embargo on Russian oil and petrochemicals, on phasing them out.”

Germany and other EU countries that rely heavily on Russian gas may switch to coal, but this would go against the bloc’s climate goals and would not be a long-term answer.

Biden addressed possible strategies to curtail Russian oil sales with European leaders. German Chancellor Olaf Scholz, stated that Europe cannot ensure its energy supplies without Russian imports. Scholz underlined that energy had been purposefully left out of earlier rounds of sanctions, and that Russian energy is “vital” to European citizens’ daily lives.

Meanwhile, Varga Mihaly, Hungary’s finance minister, said in a Facebook video that his country would oppose any measures against Russian energy. Europe gets 40% of its natural gas from Russia and a quarter of its crude oil from Russia.

Meanwhile, the US has alerady banned the import of Russian energy products. President Joe Biden said the U.S. had made the decision to ban Russian energy products “in close consultation” with allies around the world, particularly in Europe. He said many of those partners may not be able to take the same action.

“The United States produces far more oil domestically than all of Europe,” said Biden, who said the U.S. is a net exporter of energy. “We can take this step when others cannot, but we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”

 

 

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