International Oil Economist to Al-Estiklal: There Is No Alternative to Russian Energy Supplies to Europe

Dr. Mamdouh Salameh, an international oil economist, stressed that the Ukraine crisis added a political dimension to the energy crisis, but despite this, OPEC+ (led by Saudi Arabia and Russia) still believes that the oil market is balanced and does not need to raise production.

In an interview with Al-Estiklal, Dr. Salameh explained that most or the majority of OPEC+ members need the oil price to range between $80 to $100 per barrel, to balance its budget and increase its investments in the non-oil sectors.

However, he pointed out at the same time that the Gulf countries' benefit from the rise in oil prices is paralleled by an increase in spending from income on the import bill of foodstuffs and others, which also naturally increase their prices.

The international energy economist stressed that all gas exports from the United States, Qatar, Australia and Norway cannot replace Russia's supplies to the European Union, given its dependence mainly on Moscow in this context.

In addition, the quantities of gas discovered in the eastern Mediterranean cannot meet the needs of the European Union, according to Dr. Salameh, who also pointed out that Turkey has big ambitions in that region, and wants to be the main center for gas access to Europe.

Dr. Mamdouh Salameh was born in the Jordanian city of Irbid in 1939, and holds the position of consultant at the World Bank for oil and energy affairs, and is also a visiting professor at the National University of Commerce in the French capital, Paris.

 

 

Energy Crisis

 

• What are the dimensions of the current global energy crisis, especially after the Russian invasion of Ukraine?

Dr. Mamdouh Salameh: The dimensions of the world's energy shortage crisis are catastrophic for the global economy, and are causing price hikes for all energy consumers of the world's citizens everywhere.

Oil and gas prices were on the rise even before the invasion; but the Ukraine crisis added a political dimension to these prices, and we saw that the prices of Brent crude (the international pricing standard) exceeded the barrier of $112 per barrel.

Global demand is very strong; there is no doubt that this will, of course, affect the increase in the cost of food and the cost of manufacturing many materials, because oil enters into global agriculture and industry, in terms of medicinal drugs, fertilizers and petrochemicals.

 

• What is the position of the OPEC countries on this crisis, and how can it be faced?

Dr. Mamdouh Salameh: OPEC+ always seeks to balance the oil market between supply and demand, and defend oil prices, because the majority of its members need the oil price to range between $80 to $100 per barrel to balance its budget.

OPEC+ decided until today and at its last meeting, early March 2022, not to change its production policy, meaning raising its production by 400,000 barrels per day until its production returns to what it was before the Corona pandemic.

This means that with higher prices now, OPEC still believes that the oil market is still balanced and does not need to raise production further.

However, if it feels that the oil market will destabilize, it will raise its production, yet the ability of OPEC+ to raise its production is limited.

 

 

• How do rich and poor countries face escalating energy prices?

Dr. Mamdouh Salameh: In general, higher prices affect the world economy from rich and poor countries more.

Rich countries, although they are able to pay oil prices of $112 per barrel; but this means that its oil import bill will rise significantly, and this will weaken the purchasing power of citizens, as well as the trade balance and will affect its economic growth.

Poor countries use much less oil than rich countries, but it is affected by high prices due to its inability to pay a high oil bill, which will also lead to a lower level of economic growth.

 

• What does the energy future look like?

Dr. Mamdouh Salameh: Even throughout the twenty-first century and beyond, the world's energy future will depend on oil and gas.

Because renewable energy, such as wind and solar energy, cannot supply the world's needs, due to interruptions during wind gusts or during sun clouds, and weather changes that prevent the continuation of production.

Also, the transition from oil and gas to renewable energy cannot succeed without relying on oil and gas; therefore, oil and gas will continue to dominate the world's energy well beyond the twenty-first century.

 

 

Russia and Europe

 

• Russia supplies Europe with irreplaceable quantities of oil and gas. What is the fate of the countries of the old continent, especially Germany?

Dr. Mamdouh Salameh: In fact, Russia supplies the European Union with more than 40 percent of its gas needs, and 30 percent of its oil needs, and so far Russia has not decided to stop its supplies.

But if Russia did so in response to the sanctions that were imposed on it; the European Union will face a much larger energy crisis than it did before the Ukraine crisis.

Meaning that citizens and countries in the European Union will pay a high price for these materials, which reduces the economic growth of the European Union.

Not to mention that all LNG exports of the United States, Qatar, Australia and Norway cannot replace the 200 billion cubic meters of raw gas sent through pipelines from Russia to the European Union, in addition to 16 million tons of LNG.

The economy of the European Union will be greatly affected, and Germany will be the biggest loser; because it is the largest economy in Europe, and depends on oil and gas supplies from Russia for 65 percent of its needs.

 

 

• What will happen to the Nord Stream 2 pipeline project to transport Russian gas to Germany in light of the latest sanctions?

Dr. Mamdouh Salameh: Of course, the United States, even before the Ukraine crisis, wanted to kill this pipeline, but it failed to stop its construction and will fail to kill it permanently.

The only country that can stop this line is Germany (which had suspended approval for its operation only in the context of sanctions).

But if Germany agrees with the United States to stop this project completely, then Berlin will have committed the greatest economic folly; because more than 150 major German companies contributed to half the cost of this pipeline, which had a capacity of 11 billion barrels.

Which means the bankruptcy of these companies, and it will be a major blow to the German economy and the future of energy security in Germany as the largest economy in the European Union and the main engine of the economy in Europe.

 

• What is the location of China from the global energy crisis?

Dr. Mamdouh Salameh: China's position on the Ukraine crisis is somewhat neutral, but Beijing and Moscow seek to transform the current world order from a unipolar system to a multi-polar one.

Russia is able to supply China with the bulk of its oil and gas needs, and it does so. As Russia has also threatened that if it stops oil and gas supplies to the countries of the world, it will exclude China from that, as they are linked by pipelines to transport oil and gas.

In addition, China is the largest oil importer in the world, and is now the largest importer of LNG, and the largest energy market in the world.

Thus, it will be profitable for Russia to have a strategic ally and a huge market of this kind, such as China.

 

 

Regional Situation

 

• What is Turkey's position in the global energy crisis? What is the future of the Mediterranean gas issue?

Dr. Mamdouh Salameh: The quantities of gas discovered in the eastern Mediterranean are good, but they cannot replace the needs of the European Union.

Turkey has big ambitions in the eastern Mediterranean, and it wants to be the main center for gas and possibly oil to reach the European Union.

The focus is on gas now, especially since there are major pipelines for transporting gas from Azerbaijan through Turkey to the European Union countries, and then there is a pipeline for transporting gas from Iran to Turkey to meet part of its needs.

There is, of course, thinking about building a line known as EastMed under the Mediterranean Sea to transport Israeli and Cypriot gas in the future to the European Union, which Turkey opposes.

Turkey will not accept a peaceful settlement in the eastern Mediterranean without the Turkish Cypriots getting a fair share of the gas discovered in Cypriot waters, which will make it a partner in any future exports from Cyprus and Israel to the European Union.

 

 

• What is the location of Israel from the global energy crisis?

Dr. Mamdouh Salameh: ‘Israel’ is now self-sufficient in terms of its gas needs, and it is able to export significant quantities.

But with regard to oil, Israel needs to import it significantly; consequently, it is affected, like other oil-importing countries, by those rising world prices for oil.

The same applies to Turkey, which needs to import large quantities of gas and oil because of the size of its economy. Of course, as a result, Turkey is affected by high prices, which is reflected in the rapid growth of its economy.

 

• What are the implications of high energy prices on the Gulf countries?

Dr. Mamdouh Salameh: Of course, all the oil-producing countries in the world, including the Arab Gulf states, will benefit in principle from the rise in prices, this will help it close its budget deficit and make significant investments in the non-oil sector of its economy to diversify its sources of income.

But its benefit from the rise in oil prices will be paralleled by the increase in domestic spending on the import bill of food, agricultural and other imported materials.