Europe flails and Saudis play a waiting game
Summary: MENA hydrocarbons producers and most particularly Saudi
Arabia play a strong hand and a waiting game as Europe fumbles its
energy strategy.
We thank Francis Ghilès and CIDOB for permission to republish his article originally published by CIDOB opinion 695
under the title “Europe could face strategic shrinkage”. Francis is a
specialist on security, energy, and political trends in North Africa
and the Western Mediterranean and an associate senior researcher at
CIDOB, the Barcelona Centre for International Affairs. He is a regular
contributor to the Arab Digest podcast. His most recent podcast is
available here.
Europe is discovering all over again just how much it depends on
foreign natural gas. So concerned is the British government that
consumers will not have enough to heat their homes this winter, it has
asked Qatar to guarantee the UK ́s security of supply. As they plead for
more fossil fuels from Russia, Saudi Arabia and Qatar, major
energy-consumer countries pledge at the Glasgow climate Summit COP26 new
ways to curb the carbon emissions caused by the burning of those same
fossil fuels. Exporters are withholding supplies to drive up prices
which have reached their highest level in years. The paradox of big oil
and gas consumers who want to pivot to cleaner energy begging for more
fossil fuels and trying to drive down prices simply underlines how messy
the energy transition is getting. The EU faces a growing risk
of “strategic shrinkage”, in the words of the High Representative of
the European Union for Foreign Affairs and Security Policy, Josep
Borrell. The three factors which explain his gloomy outlook include the
EU’s shrinking share of the world’s wealth (25% in 1990 forecast to
decline to 10% in 2031 and 5% by the end of the century); the normative
power of the EU is threatened by competitors whose values are very
different; and Europe’s strategic theater is increasingly contested by
hybrid security situations and destabilisation strategies featuring
cyber warfare and disinformation. The EU faces a growing risk of
strategic shrinkage, in other words the risk of being always principled
but seldom relevant.
The second paradox is the sight of the US president bemoaning the
failure of the world’s top oil producers to pump more crude to bring
down prices and singling out two countries: traditional adversary,
Russia and long-time US partner Saudi Arabia. Saudi Arabia, OPEC’s de
facto leader and the world’s top oil exporter is the only oil producer
with the capacity to add significant amounts of crude to the market. But
it is not budging as the Saudi energy minister, Prince Abdulaziz bin
Salman argues that the issue
was that “the energy market is going through havoc and hell”. Saudi
Arabia's coolness towards the US seems motivated by President Joe
Biden’s lack of recognition of the importance of Crown Prince Mohammed
bin Salman since he took office. Biden has criticised Saudi Arabia over
the brutal murder in 2018 of Jamal Khashoggi and other human rights
abuses, and promised to reassess Washington’s relationship with Riyadh
and freezing some arms sales. Neither the visit of the president’s
national security adviser, Jack Sullivan in September nor that of his
climate envoy John Kerry in late October, let alone the regular contacts
between Antony Blinken, US secretary of state with his Saudi
counterpart, Prince Faisal bin Farhan, have changed the Saudi position.
Biden’s threat to release crude oil from US strategic stockpiles did
nothing to persuade the OPEC+ oil exporter group (OPEC and Russia) to
adjust its production quotas. The organization stuck with a plan
to add 400,000 barrels a day of supply each month, gradually restoring
the huge amount of production it agreed, under US pressure, to cut last
year to lift prices.
On several occasions in recent history, Saudi Arabia has risked
causing schisms within OPEC, either to limit (1976) or cut (1986,
2016-16) oil prices. Now consumers of oil and gas are faced with a third
paradox, that of a Saudi minister advocating the creation of an OPEC
for gas and coal in Moscow, the capital of Russia and the former USSR,
which Saudi leaders had little affinity with until recently. Saudi
philosophy was to make sure that the lifetime of oil as a major energy
source was as long drawn out as possible and that its reserves could be
extracted to the last barrel of oil. This philosophy was shared by many
other major oil and gas producers, but it appears to have undergone a
revolution in recent months as developed countries have decided to
accelerate their withdrawal from hydrocarbons. Some observers saw an International Energy Agency
report last May as an appeal to stop investment in new upstream oil and
gas projects. In Riyadh and Moscow the report was perceived as a threat
from the West. Saudi Arabia felt all the more threatened because it
requires huge financial resources to transform its economy and prepare
for the post-oil era, having fallen far behind its neighbours, notably
the United Arab Emirates, in this respect.
Observers also noted that gas prices started rising late last spring
after the IEA report was published. The Russians can be forgiven for
thinking that the EU, having done all in its power since the turn of the
century to break long term gas contracts that provide security of
supply, was getting its just deserts. Since 2000, the EU further has
insisted on replacing the oil indexation of gas prices with gas to gas
competition. By last summer, spot prices for gas were five times higher
than the price generated by indexation on oil. Recent EU policy on gas
imports has scored a magnificent own goal. For years, Algeria, which is
an important provider of gas to southern European countries, has been
pleading with the EU not to change a time tested policy, to no avail.