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Saudi Arabia reduces oil prices to Asia and Europe

China and India have become the main buyers of Russian oil
empresa-petroleo-refineria

REUTERS/MAXIM SHEMETOV  -   Saudi Aramco oil facilities at Abqaiq, Saudi Arabia

Saudi Arabia is offering some of its crude at lower-than-usual prices in response to Russian oil flows that continue to provoke intense competition.

The Saudi kingdom has priced Arab Heavy and Arab Medium at the biggest discount to Arab Light since 2014 in an attempt to win back Asian countries as its main customers. In this context, China and India are usually the countries that buy the most discounted varieties of crude oil, but after Russia began its invasion of Ukraine, these two countries have begun to buy their oil from Moscow.

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PHOTO/Reliance Industries Limited en Jamnagar vía AP - Crude oil refinery in the Indian state of Gujarat. Indian crude oil imports from Russia increased from 100,000 barrels per day in February to 370,000 barrels per day in April and 870,000 barrels per day in May

So much so that Russia has already become China's main oil supplier. So far this year, China has imported a total of 8.41 million tonnes of crude oil from Russia, which translates into 2.98 million tonnes more than in the same period in 2021. Likewise, last May, Beijing reportedly imported 7.81 million tonnes from Saudi Arabia, an increase of 9% year-on-year. This situation has led to Saudi Arabia's displacement to a second position as an oil supplier to Asian countries, a new scenario for the kingdom, which it intends to reverse.

Saudi Arabia is not the only member of the Organisation of the Petroleum Exporting Countries (OPEC) to have been affected by Asia's thirst for cheaper crude. Countries such as Iran and Iraq have had to reduce the cost of their oil to try to compete for customers such as China, as has Venezuela, which is offering its oil at record prices.

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REUTERS/BOBBY YIP - Logo of the Chinese company Sinopec Corp

Along these lines, Arab Heavy and Arab Medium produce fuel oil, a type of fuel used for maritime transport and power plants. This characteristic has made them less attractive because refineries are now looking for oil that produces more gasoline and diesel.

 Russia, China's main oil supplier

Since Russia began its military invasion of Ukraine, China has reportedly increased its oil imports by 54.84%, according to data gathered by EFE. Chinese state-owned companies such as Sinopec and Zhenhua Oil have increased their purchases of Russian oil, attracted by the significant discounts that Russia has reportedly decided to implement in its prices as a result of the sanctions. 

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AP/RAJANISH KAKADE - An employee at a Bharat petroleum fuel station fills up a vehicle with gasoline in Mumbai, India, Saturday, June 11, 2022

In February, Russian government-owned Rosneft and China National Petroleum Corporation (CNPC) reached an agreement to supply 100 million tonnes of crude oil to China over a 10-year period using Kazakh pipelines.

In this regard, Beijing and Moscow's relations have continued to strengthen, even after the military invasion. In early March, China called on the West to "respect its legitimate interests" and criticised economic measures against Moscow, stating that "sanctions do not solve problems" but "help create new ones". 

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REUTERS/ALEXEI NIKOLSKY/KREMLIN - Russian President Vladimir Putin (r) shakes hands with his Chinese counterpart Xi Jinping

Days before the Russian attacks, the two countries further strengthened their relations, proclaiming a "new era". This strategy served to send a message to the world, challenging the current world order. The alliance was intended to show that the United States was not the only supporter since, according to their declarations, the world had changed and was now "multipolar".

However, despite the multipolar nature of the geopolitical scene, the war already waged in Ukraine has not been the best strategy for Russia to establish itself as a rival to the United States. In this respect, Russian President Vladimir Putin has achieved the opposite, as the rejection of Russia in European countries has been unanimous. The sanctions, the boycott of its products and the strengthening of NATO itself, even more so with the new entry of Finland and Sweden, are intended to isolate Russia at a time when China has already been considered a threat by NATO members themselves. 

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SPUTNIK/MIKHAIL KLIMENTYEV/KREMLIN via REUTERS -  Russian President Vladimir Putin (L), Indian Prime Minister Narendra Modi (C) and Chinese President Xi Jinping pose for a photo during a meeting on the sidelines of the G20 summit

This situation has led China to firmly oppose the new Strategic Concept signed at the Madrid Summit. For the Asian giant, the Concept has a strong "ideological bias" and is full of "Cold War mentality"