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

Flooding in Dubai affected many people's homes. Emaar has promised .free repairs for its residents, and an upgraded sewerage system is planned

Emaar promises free repairs as Dubai launches sewerage system

Emaar Properties is offering free repairs to residents whose homes were damaged during this week’s extreme flooding, as Dubai also announced an AED80 billion ($22 billion) sewerage system. The developer announced on Friday that it would repair all homes in its communities affected by the historic levels of rain, “at no cost to residents”. Emaar’s […]

A customer paying with a credit card inside the Black Friday Market in Beirut. Lebanon wants more people to move away from cash

Lebanon launches plan to promote use of bank cards

Lebanese central bank Banque du Liban announced a new agreement on Thursday that it hopes will result in a rebound in the use of bank cards. As part of the agreement, Mastercard and Visa will lower card fees on transactions, particularly for people with bank accounts based outside Lebanon. In a press release, the bank […]

Construction work in Kuwait. Nurseries, schools and shops are being built for the new residential district of Al Metlaa

Kuwait signs $140m contracts for Al Metlaa development

Kuwait’s Public Authority for Housing Welfare (PAHW) has signed two contracts worth KD42 million ($140 million) to construct public buildings in Al Metlaa, a new residential district north of Kuwait City. Nurseries, stores, schools and shops will be included, state news agency Kuna reported. Electricity connections have been provided for 109 buildings in the district, […]

Workers at Cano Limon oil field in eastern Colombia. Oil is one of the country's largest exports

UAE strikes Colombia deal to strengthen Latin American links

The UAE has strengthened trade relations with Latin America after signing a comprehensive economic partnership agreement with Colombia, just days after a Cepa deal was struck with Costa Rica. Officials from the UAE and Colombia put pen to paper on an agreement that will cut tariffs and remove trade barriers between the two countries. UAE […]