How the Russia-Ukraine crisis could be a boon for Gulf energy producers

World leaders have rushed to announce hefty sanctions against Russia after it invaded Ukraine by air, land and sea – with the EU, US, and the UK leading the charge.

From London to Tokyo, officials have announced biting economic sanctions and threatened more are on the horizon, with the EU outlining further measures on Friday – saying it would stop the access of Russian banks to the European financial market, and impose penalties on Russia’s aviation, technology and energy sectors.

Germany has made the most notable move so far, halting certification of an $11bn (£8.2bn) gas pipeline project from Russia which had been set to relieve pressure on European consumers facing record-high prices.

Yet other nations have been hesitant, as sanctions on the energy sector in Russia, the world’s second-largest producer of oil and a country responsible for 40 per cent of Europe’s natural gas imports, or Russia itself turning off the taps, could be a tricky double-edged sword.

This could have a potentially devastating impact on the global economy at a time when prices are at a several-year high.

Even the threat of disruption to energy supplies combined with the upheaval of war saw oil prices exceed $100 a barrel, the highest since 2014. Experts and officials have warned low to middle-income earners will be the worst hit by related unprecedented petrol and energy price hikes.

It will likely mean the world relying on other oil and gas producing states to pump more to help keep prices down or, in a worst-case scenario, to plug the immediate shortfall should Russia halt supplies.

And this is where the Gulf could leverage the Ukraine crisis in its favour, perhaps becoming one of the the only “winners” in this war.

Well before Russia launched its invasion, Washington dispatched Brett McGurk, the White House’s coordinator for the Middle East and North Africa, to Saudi Arabia and the United Arab Emirates, to discuss regional conflicts, mutual defence pacts but also reportedly, the Gulf’s ability to pump more oil.

Riyadh has so far declined, instead sticking with a five-year OPEC + output deal which includes Russia, even prompting accusations in the US media that it was “colluding” with Moscow.

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But it could leverage this need in the future.

They have bowed to US requests in the past: in 2018 Saudi Arabia heeded Donald Trump’s call to boost oil production to bolster oil market stability and then later to decrease production.

President Joe Biden’s election campaign promise was to make a “pariah” out of Saudi Arabia over the 2018 murder of dissident Saudi journalist Jamal Khashoggi and the disastrous war in Yemen. Much to the fury of the Kingdom, he has so far snubbed de facto ruler Crown Prince Mohammed Bin Salman in favour of his ailing father King Salman.

What could turn this on its head is Washington’s concern about oil prices and Russia potentially halting supplies, although the Kremlin has made it clear it does not want to do this.

“Biden understands realpolitik means you have to work with Saudi,” said Andreas Krieg, a security specialist at King’s College London, who was in Qatar for a gas summit last week where Ukraine was at the top of the agenda.

“The Saudis could ask for some sort of package of comprehensive missiles that they need to be restocked or more of a green light when it comes to Yemen. It would be foolish of them not to when they are in the driving seat,” he told The Independent.

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But it is not just Riyadh that is holding the reins.

Iran is in the final stages of fierce negotiations with the US to return to the 2015 new nuclear deal, known as the JCPOA, which was scrapped in 2018 by Mr Trump who slapped tough sanctions on the country aimed at curbing oil exports and its associated revenues.

Iran wants the ability to sell its oil unhindered and return to the 2.5 million barrels per day (bpd) that it exported before Trump’s campaign of “maximum pressure”.

Consulting firms which track Iran’s oil flows told Reuters that Iran’s crude exports dwindled to as low as 700,000 bpd in January.

Karen E Young, director of the Program on Economics and Energy at the Middle East Institute, said the need for more oil in the market and a guaranteed supply line presents Tehran with considerable negotiating power as the final JCPOA details are being hammered out.

“A lot of Iranian oil is already in the market through other means, but maybe they could get to 3.5 million barrels bdp. They do have a bit of leverage there. “

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Ms Young also pointed to Qatar, the world’s largest producer of Liquefied Natural Gas, which is now in high demand.

Qatar’s energy minister Saad al-Kaabi said on Tuesday that neither Qatar nor any other country has the capacity to completely replace Russian gas supplies to Europe – should the worst happen – given it is responsible for nearly half of what the continent needs.

Germany is perhaps the most under pressure as it almost entirely relies on Moscow for gas and on Tuesday halted the Nord Stream 2 gas pipeline project, designed to double the flow of Russian gas direct to Germany, to help bring down prices.

Qatari volumes are currently locked into long-term contracts mostly with Asian buyers.

But on Tuesday, Mr Al-Kaabi did say that up to 15 percent could be diverted to Europe.

While this would not be enough to plug the gaping hole left by Russia it would be a powerful card Doha could use to secure western support and clout in the region, as it is coming out of a four year Saudi-led blockade.

The best solution out of the crisis would be the removal of the world’s dependence on non-renewable energy. But that would take too long in the immediate crunch.

In the interim, the oil and gas producing countries of the Gulf could perhaps be winners of sorts in this messy war.