The energy and food crises are not direct outcomes of just the war in Ukraine. The energy and food crises are connected to many other unaddressed critical issues. Thereforre, they must be addressed holistically.
The conflict between Russia and the West that was exacerbated by Russia’s military intervention in Ukraine must not be understood as a single isolated event. It is global issue. As such, it must be examined through the systems that were activated to act and counteract measures taken by each side who are directly involved in the conflict as well as the acts and reactions of those who are not directly involved. Biden’s visit to the Middle East is an outdated approach to modern problems that cannot be examined through the sheer power of Western systems and institutions. Here, the energy crisis is the focus.
US President Joe Biden’s visit to the region comes at a thorny stage, with challenges that make achieving the goals of the visit difficult. Because the solutions are linked to several parties, not only Israel and Saudi Arabia, but also all countries that affect the oil markets, import and export. This makes the department broader to include entities and countries with different projects, visions and interests.
Here, we can talk about several paths: oil importers, oil exporters, and major and active countries such as China, Russia, India and Iran. Biden, then, must address all threads of these paths simultaneously.
For its part, the “Financial Times” newspaper described in a report the tasks for which Biden came to the region as the “impossible mission”, on the part related to the domestication of oil prices and the problems he faces.
From his trip to Saudi Arabia, he hopes to persuade its leaders to increase oil production in the hope of paralyzing Russian oil. The newspaper said that Biden will arrive in Saudi Arabia, bringing with him a two-pronged plan that will reduce oil prices and “punish” Russian President Vladimir Putin at the same time:
The first part of the plan is to persuade the Saudis to increase production rates.
Second, it is setting a maximum price for what Russia can sell its crude oil through.
Executive directors of oil companies and analysts of the oil market say that the plan faces difficulties and risks, and may even reverse, in a way that pushes Russia to reduce its production rates, which raises oil prices.
In this regard, Bill Farren-Price, director at the consulting firm Envirus, says, “It is like an impossible task,” adding that the Gulf OPEC members “may have exhausted their supply capacity” and that setting a maximum price is a “flirt with danger.”
The newspaper says that Biden may have returned with less than he hopes to get, according to people familiar with the kingdom’s thinking. Saudi production has risen to 11 million barrels per day, or more than 10% of global production, and the kingdom has agreed to increase production rates over the next two months. This means a production capacity of less than 1 million barrels per day of official production capacity, and they would be reluctant to use this temporary stockpile.
At the end of last June, French President Emmanuel Macron was heard speaking with Biden at the G7 summit, that UAE President Sheikh Mohammed bin Zayed told him that the UAE was producing to the “maximum” and that Saudi Arabia’s ability was limited in the short term. Farren-Price says, “If Biden was hoping that his trip to Riyadh would lead to a direct increase in Saudi oil production, he would be disappointed.”
One of the plans on the table for discussion is to stop securing ships loaded with Russian crude oil, except for importers who want to continue buying Russian oil, provided that they stay within the specified price ceiling, in addition to another step aimed at restricting the price of oil without reducing the quantities of exported oil.
While an expert on Russian oil at Harvard University’s Davis Center, Greg Kennedy, believes that “Russia is in a weak position when Europe will begin to implement the ban, especially if Britain joins, as expected … if you add the volume of Russian exports to the long sailing periods to China and India.” Russia will have a problem finding enough tankers to transport its oil at the current volume.” Moscow has its cards, too.
Derek Brown and David Sheppard, authors of the report in the “Financial Times”, point out that “in the face of this situation, Russia may have to accept the maximum price at which it sells its oil, or it may be forced to close oil wells, to the detriment of its production capacity in the long run. However, there are skepticism from industry directors as well as officials in the Biden administration. Are they trying to lower oil prices or Russia’s resources? Are they trying to lower oil prices or Russia’s resources?” Any plan needs the approval of both India and China, the two importing countries,” said an industry executive. Russian oil is in large quantities, and both countries will be reluctant to accept US terms on the energy relationship with Russia.”
Ed Morse, director of merchandise at Citi Goods Research, believes that without China and India, the plan will affect the dwindling number of European buyers, in a way that capping the price will only affect a third of Russian exports… Keeping track of Russian oil shipments will be difficult, if importers use warehouses, facilities and trans-shipment to hide the movement of Russian barrels of oil.” Morse adds, “The amazing thing is how you will cap the price of something, and you do not control the middlemen…European policy makers should prepare themselves for Russian retaliation. This may include Moscow’s refusal to open Nordstream 1 to Germany, which Russia has closed for maintenance, and supplies from Kazakhstan.
In an extreme case, Russia could stop exporting oil, in which case the price of oil could rise to $380 a barrel, double the price it was during the 2008 global financial crisis.
Kevin Bock, a consultant at the Washington-based consulting firm Clearview Energy Partners, points out that “Russia has a veto on this… the idea of going around the world to cut off the flow of resources to the Kremlin, could be a dangerous and fanciful thinking.”
