Saudi Arabia and the United Arab Emirates (UAE) are buying cheaper Russian oil for their own consumption since the Ukraine war broke out

Russia's oil benefits OPEC+

photo_camera REUTERS/VASILY FEDOSENKO - Drilling rig at the Yarakta oil field owned by the Irkutsk Oil Company (INK) in the Irkutsk region of Russia

Following the sanctions imposed by the United States and the European Union since the beginning of the war, Russia has had to look for other countries to buy the fuel it produces. To attract new buyers, it has reduced the price of its fossil fuels. Historically, the European Union has been the main buyer of Russian oil. In December 2022, a maximum price of $60 per barrel from the Urals was imposed on imports to Europe in order to reduce Putin's profits from crude oil sales and, as a result, the Kremlin's crude oil imports to Europe fell sharply.  

The sanctions on Russia have made Moscow's oil on average 22% cheaper than the OPEC price per barrel in April 2023. Thus, Saudi Arabia and the UAE are importing Russia's coveted black gold at a premium. Despite being two of the world's leading oil producers, both countries have decided to take advantage of the Kremlin selling the fuel at a lower price to meet their own domestic demand.  

According to Reuters, Saudi Arabia imported 647,000 tonnes (48,000 barrels per day) of oil from Russia, twice as much as in 2021.  In the summer, during the hottest period, the Gulf country needs large amounts of energy to meet the needs of air conditioners.  

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The Joint Organisations Data Initiative (JODI) states that in Saudi Arabia the volume of crude oil burned is about 600,000 barrels per day during the summer months and 300,000 barrels per day during the winter months. Similarly, Fujairah, an oil hub located in the UAE, has received 1.17 million tonnes of Russian oil since the beginning of the year, compared to 0.9 million tonnes during the same period in 2021. 

Last March, Saudi Arabia imported about 200,000 barrels per day from Russia. Thus, despite Western sanctions, rich Gulf countries are benefiting from lower Russian prices, but also from higher fuel prices. Similarly, China has taken advantage of these reductions and has become the world's largest importer of Russian oil. 

On the other hand, Russia and Saudi Arabia have announced that they will cut oil production by 500,000 barrels per day from May until the end of the year each. Other OPEC countries such as Kuwait and the UAE have also joined this initiative.  This will lead to higher petrol and diesel prices worldwide. OPEC+ brings together the 23 largest oil producers and is led by Saudi Arabia and Russia. These 23 countries together control more than half of the world's oil production and therefore world oil prices.  

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Although Russia is not producing as much oil as before because of sanctions, high prices mean that it makes a profit despite selling its oil more cheaply than OPEC.

While during the pandemic oil prices fell considerably due to the shortage of demand, OPEC+ has decided to continue production from 2021 onwards, but at a slower rate. Thus, as supply decreases, prices may increase. With the war in Ukraine, prices increased even more. According to the IMF, in 2023 OPEC countries in the Middle East and North Africa will receive 3.2 billion more profits than expected. OPEC predicted that global oil demand would increase in 2023, mainly due to China's improving economic situation.

A significant increase in oil prices will lead to higher inflation on a large scale and could slow down the global economy. On the other hand, tensions could increase between the US and the Gulf states as US President Joe Biden called on Saudi Arabia and other allies to increase production in order to lower prices, thereby reducing Russia's profits and curbing inflation.

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