One reason, and a good one, for Lavrov’s dismissive comments is the
windfall Russia is enjoying as the price of oil jostles close to US$100 a barrel,
a price that just a few short weeks ago none but the boldest of
analysts were calling for and even then not before the end of 2022.
Alastair Newton, quoting the RBC’s Helima Croft, wrote presciently in
our 10 January newsletter
of the “wild cards” of an Iran JCPOA deal and a Russian invasion of the
Ukraine while arguing that OPEC+ has “a target price for year-end of
somewhere in the US$80-90pb range.”
At that point oil was at US$80.87 and on Tuesday, thanks in large
part to Putin’s flexing of Russia’s military muscle vis a vis Ukraine
the price had escalated to US$98. That, coupled with the huge jump in
the price of gas, has swelled his coffers and strengthened his
willingness to play high stakes poker with the West. And watching events
unfold and enjoying the high prices are the Gulf energy producers and
Putin’s fellow authoritarians who see in the Russian president’s blatant
moves both economic and strategic wins for themselves.
Saudi crown prince Mohammed bin Salman has refused repeatedly
the entreaties from emissaries of US President Joe Biden to open the
taps and put more oil into the market. Ahead of mid-term elections, the
president is feeling the heat of high oil prices at the pump and in the
overall US economy. But MbS remains unmoved, in part because he feels
slighted at Biden’s refusal to meet with him, but more so because the
Public Investment Fund which he controls and administers is benefitting
hugely. And the strategy to hold OPEC+ increases to 400,000 barrels per
day, agreed last year is one the Saudi energy minister Prince Abdulaziz
bin Salman says the kingdom will stick with rather than upset the cartel
apple cart with another round of negotiations. WSJ (behind paywall) quoted
an unnamed OPEC delegate at the 16 February International Energy Forum
in Riyadh as saying: “The kingdom is not on the same page with the US
currently. We all know they are not ready to cooperate with the US to
calm the market.”
The windfall means more money to fuel the crown prince’s relentless and ruthless ambition (see yesterday’s newsletter)
to overhaul the Saudi economy and society, Vision 2030. And it means
the high cost of prosecuting the ongoing Yemen war can be more easily
digested without diverting funds from his numerous and hugely costly
mega projects.
For the de facto leader of the UAE Abu Dhabi Crown Prince Mohammed
bin Zayed the high price of oil will also be welcomed but for him the
Ukraine crisis is further confirmation of America’s ever-weakening role
as a global super-power. His adroit positioning of the UAE wherein he
strengthens relations with Israel - where America’s commitment remains
strong - while engaging with Russia and China means that he keeps all
avenues of influence open. And, unlike MbS, the Abu Dhabi crown prince
does not have the reputational damage that has accrued to his younger
colleague as a result of the former’s involvement in the killing of the
journalist Jamal Khashoggi and the detention and torture of Saudi women
activists.
For both, however, unequivocal backing of Putin is something they
will want to avoid. And should the Russian president persist in his
military adventure - emboldened by a thus far mostly insipid response
from the US and the West - and seek to occupy the whole of Ukraine, MbS
and MbZ will be in an uncomfortable place. They will find themselves
called on by their Western friends and allies to denounce Putin, their
fellow OPRC+ member whose actions have bumped the price of oil and
helped enable the cartel to regain lost ground and assert anew a power
that had seemed to be on the wane as the world begins the long and
arduous task of moving to green energy.
Better, one can hear the pragmatic MbZ counselling Putin, to take his
territorial gains in the Donbas and leave a fearful and weakened
Ukrainian government in place in Kyiv. Meantime, as Alastair Newton
sagely forecast, OPEC+ can get on with the business of keeping oil
prices at a comfortably high level, but one that doesn’t further damage
an already COVID-battered global economy.