Riyadh will not sell raw materials below the limit set by the West
As Saudi Energy Minister Abdulaziz bin Salman said, if Western countries are going to impose a price limit on oil exports, then its the state will refuse to trade with buyers who have accepted this condition. So far, the cost limit for “black gold” does not apply to the Middle Eastern kingdom (the G7 has set a price limit of $60 per “barrel” for Russian raw materials). Nevertheless, according to experts interviewed by MK, Riyadh is making it clear to Washington that delegating the current energy claims to Russia to other producing powers risks leading to the most grandiose global economic crisis.
“Saudi Arabia sends a signal that no tough moves by consumers under NOPEC [a US bill giving the US Department of Justice the power to file an antitrust lawsuit against OPEC for trying to control production or influence oil prices] is unacceptable, but also suggests that trading in Russian “ black gold» will be produced. No one forbade other exporters to mix raw materials. In itself, the resale of Arab oil «with the presence» of Russian ingredients is not prohibited. Information about such schemes has previously been leaked in relation to other countries. In general, the global energy market is now not ready to unconditionally adapt to the needs of US and EU consumers, which is a consequence of their strong imbalance after the imposition of tough sanctions against Russia and the long-standing deterioration of US-EU relations with a number of key suppliers.
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“Such a statement from one of the largest producing countries in the world, first of all, is a warning to the United States. It's not about the sanctions. The White House has long promoted the idea of creating an alliance of buyers (NOPEC) as a counterweight to OPEC. The United States thus wants to begin to regulate world oil prices in the same way that the OPEC + cartel influences them now. Saudi Arabia sees how far the Western sanctions policy towards Russia goes — the Arabs have repeatedly said that such actions can destroy the global energy market. From which, of course, everyone will suffer: both buyers and sellers of oil. This statement is more of a political persuasion, not having a purely economic basis. But there is no doubt that the pressure on the market is increasing. Sanctions, restrictions, the use of various «gray» schemes in the delivery and insurance of goods, the increase in the cost of transportation, and so on — improve the situation, but only add uncertainty.
“Saudi Energy Minister Abdelaziz bin Salman’s tough statement about refusing supplies to countries that would support the introduction of a ceiling on Riyadh’s oil prices contains several reasons and “messages” for the collective West at once.
Firstly, this is a preventive designation of a position in case American sanctions are imposed on China, limiting the supply of energy resources to Beijing. Secondly, such a tough statement by Saudi Arabia is a defense of the political status of the most important player (Washington — «MK») in the Middle East, which should not ask permission from the collective West to use the benefits of its position, for example, receiving income from the re-export of Russian oil and petroleum products to Europe and other regions. Riyadh's potential income from such transactions could be up to $300-500 million a year.
Thirdly, it is worth paying attention to the moment at which this harsh statement appeared. At the beginning of this week, the oil market broke through the important price level of $77-79 per barrel of Brent, which held back oil quotes from falling to $40-65.
The trigger for oil prices decline this week was fears of a global recession that flared up in the market due to major problems in the banking sector in the US and Europe. Therefore, the time and harshness of the statement by the Saudi Minister of Energy may indicate an attempt by Riyadh to support oil quotes, throwing in such a serious informational reason as a possible repetition of the «oil embargo» following the example of 1973, when OPEC imposed an embargo on oil supplies to the USA, Great Britain, Japan , Canada and the Netherlands. Quotes of «black gold» then grew 4 times over the year — from $3 to $12 per barrel. Subsequently, this became one of the main reasons for stagflation, which financiers called the lost decade for the world economy.
If Saudi Arabia single-handedly imposes an embargo, and most likely the entire OPEC will join it, because the next in line is price caps after Riyadh it will be the members of the organization, then the world economy will face another lost decade due to a monstrous surge in quotations for energy resources.
True, everything is not as scary as it might seem. The coming year is likely to become a crisis for the global economy, but it is worth noting that during the last cyclical crisis in 2009, oil and gas production in Russia increased by 1.2%. Together with the excellent results of the Russian energy sector in the most severe conditions of 2022, we can talk about the high adaptability of our mining sector to crisis events, both geopolitical and macroeconomic. It is possible that the 500,000 barrels per day projected by the Ministry of Energy in 2023 will be avoided or at least significantly reduced. But this does not mean that the crisis will not affect the Russian oil industry at all: this blow will not be concentrated on reducing the physical volumes of production (forecast for 2023 is 510-520 million tons — minus 3-4%) and exports (forecast for 2023 230-235 million tons — minus 3.5-4.5%), and on a reduction in its value by 15-25% due to lower average oil prices compared to 2022.