Skip to content Skip to Search
Skip navigation

Energy crisis inflates Gulf demand and strains Europe

Reuters
An Austrian soldier stands guard outside the Opec+ headquarters in Vienna
  • Gulf in no mood to bow to western pressure to boost oil output
  • US opprobium not matched in Europe, as keen not to annoy suppliers 
  • Most Gulf oil accounted for in long-term deals, often with Asian buyers 

The Opec+ oil production cuts announced in early October look set to ensure high energy prices continue for some time – a boon for Gulf producers but a headache for energy importers elsewhere.

The situation is particularly acute in Europe, where countries have been scrambling to find alternatives to Russian gas. 

The first instinct of European policy makers has been to look to producers closest to home such as Norway and Algeria, but Gulf countries could also fill some of the gap.

That provides an enticing opportunity for Middle East suppliers, but there are some potential diplomatic costs too.

Russia’s invasion of Ukraine in February and the subsequent European sanctions on Moscow have created what the EU’s high representative for foreign affairs Josep Borrell described on October 10 as “one of the biggest energy crises since the first oil shock in the 1970s”.

The scramble for alternative oil and gas supplies has seen a steady stream of European politicians visit the region.

The UK’s then prime minister Boris Johnson was in the UAE and Saudi Arabia in March, in a doomed attempt to persuade them to boost oil output.

Many others have followed, including German economy minister Robert Habeck, French foreign minister Jean-Yves Le Drian and Italian foreign affairs minister Luigi Di Maio.

Clothing, Apparel, Person
German Chancellor Olaf Scholz visits the region, securing an LNG cargo. Picture: Reuters

More recently, Germany’s Chancellor Olaf Scholz visited Saudi Arabia, the UAE and Qatar in September, securing a liquified natural gas (LNG) cargo from Abu Dhabi National Oil Company (Adnoc) for delivery in late 2022.

Adnoc has also reserved an unspecified number of further LNG cargos for Germany in 2023 and will make “demonstration” deliveries of low-carbon ammonia.

But as the October Opec+ production cut showed, Gulf producers are in no mood to bow to western pressure to boost output and lower prices. 

Indeed, some officials have been scathing about Europe’s vulnerability, not least Qatari energy minister Saad bin Sherida Al-Kaabi. 

In May Al-Kaabi told the UK’s Sky News that some countries had been “doing away with fossil fuels and demonising the oil and gas companies. And you don’t have enough investment in the oil and gas sector.”

He reiterated that in October, telling the Axios website that European countries had made a mistake in trying to switch to renewable energy too quickly while still depending on Russian gas for baseload power. 

There is little doubt Europe is exposed. The EU Agency for the Cooperation of Energy Regulators says the EU imports 80 percent of its gas needs, while domestic production has halved in the past 10 years.

Person, Human, Plant
Qatar minister of oil Saad Sherida Al Kaabi criticised countries for “doing away with fossil fuels and demonising the oil and gas companies”. Picture: Reuters/Stephanie McGehee

There is a limit to how quickly Gulf producers can bring more supplies on-stream. Most production is accounted for in long-term supply deals, often with Asian buyers.

Doha, for example, is only able to divert 10 to 15 percent of its output to Europe and new projects are not due online for several years.

In the meantime, others are spying an opportunity. Iranian officials have said they could help to meet some of the demand.

Iranian foreign ministry spokesman Nasser Kanaani said on October 10 that “Iran is an exporter of energy and oil. Iran can definitely satisfy the demands of a part of the world.” 

However, trade with Iran is complicated by the ongoing efforts to revive the 2015 nuclear deal. In any case, establishing new export facilities there would also take time. 

For now, Gulf countries continue to reap the windfall from high energy prices. Analysts expect oil to average somewhere above $100 a barrel for 2022 as a whole, and only slightly less next year.

The World Bank said in early October the GCC region’s economy would grow 6.9 percent this year.

That is allowing Gulf finance ministries to pay off debt and rebuild savings after the pandemic.

Of the GCC countries, only Kuwait and Qatar recorded a fiscal surplus in 2021, but this year every member of the bloc is expected to do so, according to the Washington-based Institute of International Finance (IIF).

Garbis Iradian, chief economist for the Middle East and North Africa (Mena) region at the IIF, said the combined current account surplus of the nine Mena oil exporters – the six GCC states along with Iran, Iraq and Algeria – will surge from $159 billion in 2021 to $448 billion in 2022.

Budget surpluses have become the norm, even for weaker economies such as Oman.

On October 6, Moody’s upgraded the country’s credit rating outlook from stable to positive, citing the improvements in its debt position and an expected surplus of almost six percent of GDP this year.

Standard & Poor’s upgraded Oman in April, as did Fitch in August.

Richer countries have also been enjoying the benefits. On September 30, Riyadh announced a 18 percent increase in government spending in 2022-24, worth around SR175 billion or 4-4.5 percent of GDP compared to targets published at the end of 2021.

Riyadh’s gains from high oil prices have prompted a furious reaction in the US. After the Opec+ decision in early October, Senate Foreign Relations Committee chairman Robert Menendez called for arms sales to Riyadh to be halted and President Joe Biden described the production cuts as “short-sighted”. 

That opprobrium has not been matched in European capitals, where officials dare not risk annoying potential energy suppliers.

However, a longer-term risk for hydrocarbons exporters is that the current energy crisis will only accelerate plans to diversify into renewable energy and convince policymakers to make a more concerted push to develop a low-carbon economy.

Latest articles

Rothschild Saudi

Edmond de Rothschild to run funding vehicle for Saudi projects

The Edmond de Rothschild Group is establishing a funding vehicle for infrastructure projects in Saudi Arabia along with the local firm SNB Capital, as part of a deal in which the Swiss investment bank will set up offices in the country.  Saudi Arabia’s massive economic diversification programme has run into financial obstacles as it faces […]

Turkey foreign property sales

Foreigners turning back on Turkish real estate

Foreign buyers are increasingly shunning the Turkish property market, wary of high prices, the expensive cost of living and a less welcoming environment for overseas real estate investors. There were only 2,064 residential units sold to foreign buyers in May, 35 percent down on the same month last year, data issued by the state statistics […]

2KEY8G1 Emirates Airline Airbus A380 aircraft landing. Aerial view of Emirates Airlines A380-800 airplane. An Emirates plane coming in to land at LAX; a spokesperson for Emirates said the contraventions were for safety reasons

US fines Emirates for operating in prohibited airspace

Emirates has been fined $1.5 million by the US Transportation Department for operating flights carrying JetBlue Airways’ JBLU.O designator code in prohibited airspace. The transportation department said that between December 2021 and August 2022, Emirates operated a significant number of flights carrying the JetBlue Airways code between the United Arab Emirates and the United States […]

Egypt will use the US funding across a range of sectors including agriculture

US allocates $130m development funding to Egypt

The US has allocated funding of $130 million for a range of developmental projects in Egypt, it was announced on Thursday. In a press release published by the US Embassy in Cairo, ambassador Herro Mustafa Garg said that the money would go towards “advancing Egyptian efforts to achieve a brighter, healthier, and more prosperous future […]