Is the U.S.–Saudi Oil Production Dispute Causing Splits in the European Bloc?

In the sixth round of sanctions against Moscow, the European Commission, the executive arm of the European Union, submitted a proposal for new sanctions against the Kremlin that included the gradual elimination of Russian oil imports for six months. The move follows the EU's move last month to ban Russian coal imports.

Confirming that these measures, which are expected to completely reduce or cut Off Russia's energy supplies to the EU, have been a complex task for the bloc, European Commission President Ursula von der Leyen said during a speech at the European Parliament: "Let's be clear, it will not be easy," especially since the oil market will experience sharp fluctuations and price hikes.

Russia ranks second in the world's crude oil production, accounting for 14 percent of the world's total oil production over the past year, according to the Oxford Institute for Energy Studies.        

About 60 percent of Russia's crude oil exports go to the European continent, while Asia receives a 35 percent share, the institute said in a March report.

 

Signs of Division

Although Germany provided considerable momentum to the decision to cut off Russian oil supplies after supporting it, the German government then came out and said that the decision would upset oil markets and create price disruptions. But von der Leyen said the six-month phase-out period for most EU countries would give commodity markets time to adjust.

Amid the controversy surrounding the ban within the European Union, two states—Slovakia and Hungary, both heavily dependent on Russian energy—are demanding exemptions from the implementation of the resolution, while Hungary's prime minister says the EU has crossed a "red line" and "touches unity" by imposing an oil embargo on Russia.

This prompted three EU officials, who declined to be identified, to assure CNBC that the commission's proposal included flexibility to give Hungary and Slovakia a longer period of time to phase out Russian oil.

The EU relies on Russia for many energy sources, including oil. In 2020, Russian oil imports accounted for about 25% of crude mass purchases.

 

Is Saudi Arabia saving European unity?

Middle East journalist Karen Elliott House said in a report published in the Wall Street Journal, that with the price of oil today exceeding the $110 per barrel barrier, and for any reason that could disrupt Saudi oil supplies, the administration has no reason to prevent the U.S.–Saudi relations from returning to the level of a strategic ally, as well as reactivating the security-for-oil relationship that began nearly eight decades ago with Franklin Roosevelt and King Ibn Saud.

While the United States does not rely on Saudi oil thanks to increases in domestic production under President Trump as well as on oil from Venezuela and South American countries, its European allies rely heavily on it. If Europe does not find other oil sources, it will find it difficult to implement the embargo, let alone maintain unity within the European bloc.

If the West wants to inflict an economic defeat on the Kremlin leader before NATO collapses under pressure from rising oil prices and inflation, U.S. President Joe Biden will have to persuade Saudi Arabia to increase production, according to House, who also said, "Sooner rather than later, the president and the crown prince MBS must cooperate in a new strategy that protects Saudi oil fields, and therefore Saudi security, from Iran. In return, the Saudis will increase production to save European countries."

Saudi Arabia's reserve capacity is 1.2 million barrels per day, twice that of the United Arab Emirates, another Gulf state that could help if it is not also affected by the Biden-led administration's lack of interest in its security.

 

Bridge the Rift

In order to solve the problem of reducing dependence on Russian oil and increasing production without causing energy prices to rise, it is up to Saudi Arabia, the world's largest oil exporter, as experts say Saudi Arabia and its neighbor, the UAE, the third largest crude oil producer in the Organization of Petroleum Exporting Countries (OPEC), can pump more oil supplies.

President Joe Biden's administration asked Saudi Arabia and the UAE to pump more of their oil production to curb price increases in mid-February before Russia's invasion of Ukraine, but Riyadh and Abu Dhabi rejected the order.

Karen Elliott House noted in her report that the ice around U.S.-Saudi relations is finally melting down and that the vital strategic alliance could get back on track, based on the late nomination of the U.S. ambassador to the kingdom.

The nomination of Michael Ratney, Washington's former charge d'affaires in “Israel,” comes 15 months after Biden postponed the appointment of a U.S. ambassador to Riyadh.

Ratney is a professional diplomat with experience in “Israel,” who the United States is counting on to help turn these fractured relations into full diplomatic relations that would yield a pipeline that would transport Saudi oil directly through “Israel” to the Mediterranean Sea and Europe.

Observers say Biden will have to visit Saudi Arabia to try to appease Crown Prince Mohammed bin Salman and convince him that he should help him pump more oil to keep his European alliance united against Putin, as well as pressure oil prices and lower inflation that threatens the popularity of the U.S. Democratic Party.