Saudi Arabia signals its support for Russia’s role in OPEC+ as sanctions pressure mounts

Saudi Arabia has hinted that it will stand by Russia as a member of the OPEC+ group of oil producers despite the tightening of Western sanctions on Moscow and a possible European Union ban on Russian oil imports.

Prince Abdulaziz bin Salman, the energy minister, told the Financial Times that Riyadh hoped “to reach an agreement with OPEC+ . . . which includes Russia,” insisting that “the world should value” the alliance of producers.

A new production deal is on the agenda as OPEC+ production quotas applied in April 2020 are set to expire in three months while energy consumers grapple with oil prices at their highest levels in a decade.

Prince Abdulaziz’s comments are an important sign of support for Russia’s traditional US ally at a time when the West is trying to isolate the country and its oil production declines, raising questions about its place in the OPEC+ group.

Riyadh is resisting Western pressure to increase crude production to help lower prices in the wake of Russia’s invasion of Ukraine, insisting there is no shortage of supply.

Prince Abdulaziz said it was too early to say what a new agreement might look like given the uncertainty in the market, but added that OPEC+ would increase production “if the demand is there.”

“With the chaos you see now, it is too early to try to pinpoint it accurately [an agreement]Prince Abdulaziz said in an interview. “But what we do know is that what we have been successful in providing is enough for people to say so far that there is merit, and there is value to being and working together.”

OPEC+ has complied with its 2020 agreement, under which alliance members raise total production each month by a modest amount of 430,000 barrels per day.

But Russia’s production has fallen since the start of the Ukraine war, falling from about 11 million barrels a day in March to an average of 10 million barrels a day in April, according to data provider OilX.

And the International Energy Agency predicts it could fall further, dropping by as much as three million barrels a day if Western powers impose tougher sanctions to reduce Europe’s dependence on Russian energy, including a potential EU embargo on oil imports. But India has increased its imports of Russian oil since the start of the war.

Brent crude, the international benchmark, was trading at around $112 a barrel last week.

Saudi Arabia, the de facto leader of OPEC and the world’s largest oil exporter, has coordinated oil production quotas with Russia, since 2016, through OPEC+.

The kingdom has sought to walk a neutral path since Russia’s invasion of Ukraine. Crown Prince Mohammed bin Salman has spoken twice with Putin since the invasion, and this month he and King Salman congratulated the Russian leader on the day the country witnesses the Soviet Union’s victory over Nazi Germany.

Prince Abdulaziz blamed the high prices of petrol pumps on a lack of global refining capacity and taxes.

“The market determinant is the capacity of the refinery, and how you open it,” he said. “At least over the past three years, the entire world has lost about 4 million barrels of refining capacity, 2.7 million barrels of which have been since the start of Covid.”

Some OPEC+ members have also consistently failed to meet production quotas, and Saudi Arabia and the United Arab Emirates are the only two producers with the potential to increase production significantly.

After Russia launched its invasion in February, the West initially avoided imposing sanctions on Russian energy assets due to Europe’s heavy dependence on the country’s gas and oil exports.

The United States and the United Kingdom banned oil imports from Russia in March. But EU countries remain divided over measures to phase out Russian oil supplies, and this month dropped a proposal to ban the EU shipping industry from transporting Russian crude.

Prince Abdulaziz said politics should be kept away from OPEC+, adding that the alliance would be necessary to make “orderly adjustments” in the future amid uncertainty over the coronavirus shutdown in China, global growth and supply chains.

To ease bottlenecks in production and refining capacity, he said, governments should encourage industry to invest in hydrocarbons even as nations shift to cleaner energy sources.

This situation needs people to sit together, focus, and bring out the farce and the so-called political correctness. . . It’s about trying to relate to the current reality and finding cures for it.”

Additional reporting by Tom Wilson in London

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