For the first time since the case of the brutal assassination of Saudi journalist Jamal Khashoggi exploded in Istanbul in 2018, the Saudi crown prince, who was suspected of giving the order, arrived in the European Union. Mohammed bin Salman’s visit to Greece and France this week symbolizes more than anything the renewed legitimacy that the extravagant kingdom and its strongest man are receiving, and this is less than two weeks after US President Joe Biden’s visit to Jeddah.
The Saudi leader arrives in Europe in the midst of an increasingly worsening energy crisis as a result of the war in Ukraine and the punitive measures against the Kremlin, which led to a reduction in the supply of energy inputs from Russia. Despite the difficulties, the EU countries are not blinking, and on Tuesday they announced a plan to reduce gas consumption by about 15% from August until March 2023.
The European move comes a day after Russia’s Gazprom announced an 80% reduction in gas volumes to Germany due to “technical problems”, raising concerns about the continued supply of gas to the continent. So far, 12 of the 27 EU countries have suffered a complete or partial interruption of gas supply since the crisis began in February. The faces of the heads of the Union for the upcoming winter, when gas storage levels currently reach 66% compared to a target of 80%.
The energy difficulties of European countries help to welcome bin Salman back. This is because Saudi Arabia, a leading player in the oil market, has the option of helping them, and in practice is already doing so under the radar.
Since the beginning of the month, Saudi Arabia, together with Iraq, has significantly increased the quantities of oil supplied to refineries on the continent through a pipeline that runs through Egypt. According to sources in the energy market, Saudi Arabia is pumping 1 million barrels a day into refineries, twice the amount it pumped in the same period last year and about 200,000 barrels a day more than in June.
In addition, from the beginning of the month, the Gulf countries are transferring another 1.2 million barrels per day to Europe via tankers passing through the Suez Canal, so that in total Saudi Arabia and its allies are transferring 2.2 million barrels per day to the refineries on the continent – that is, a jump of 90% compared to January 2022, on the eve of the outbreak of war.
The increasing supply from the Middle East reflects the change that has taken place in the oil market since the beginning of the fighting in Ukraine. Russia, formerly the leading supplier of oil to Europe (and also to Africa), began to divert its barrels from the terminals in the Baltic Sea and the Black Sea towards China and India, while the suppliers from the Middle East, who until the war focused on Asia, began to change their destination and supply to Europe.
Europe needs these shipments, since oil products make up nearly 35% of its energy needs. Before the invasion of Ukraine, out of an export of about 5 million barrels per day, Russia supplied Europe with about 3.4 million barrels, 2.2 million of which were oil and the rest were oil products. Therefore, the mobilization of oil suppliers in the Middle East does not yet cover the entire amount.
In addition, if indeed Europe’s oil embargo goes into effect by the end of the year, the current shortage will increase and the energy crisis will be exacerbated, which will be reflected in the rise in the prices of black gold. It should be remembered that the reinstatement of American sanctions on Iran in 2017-18 reduced the market by about 2.5 million Iranian barrels per day, a step that caused a 60% jump in barrel prices, to $80. The fear is that removing an even larger amount of Russian oil from the market this year (up to 4 million barrels per day) will lead oil to record prices.
Here the question arises whether the increasing supply of oil from Saudi Arabia will last long. This is surely one of the issues that the leaders of the Union will raise before Bin Salman this week. If the Union sticks to its decision to boycott Russian oil, this means that markets that currently rely on Russian oil in East Asia will also have to reduce imports for fear of sanctions, which will inevitably increase the demand for Saudi oil in other markets outside of Europe as well.
Bin Salman, who upon his arrival in Athens declared that he “did not come empty-handed”, offers Europe more than just oil. In his conversations, he discussed with his hosts about becoming the center of Europe’s hydrogen industry, the establishment of renewable energy projects, as well as the possibility of exporting cheap electricity from Saudi Arabia to Europe through Greece.
Neither the Saudis nor the Greeks gave full details about these options, but already about a decade ago Saudi officials raised this option to ease the energy problem in Europe. Until the current crisis, nothing has been done since then to advance the plans. According to the specifications previously presented, Saudi Arabia will export to Europe electricity produced from solar energy.
Although the timetable that Greece and Saudi Arabia are planning is not clear, it seems that the kingdom is speeding up processes after a delay of years. This week it also announced its intention to significantly increase its renewable energy production capacity through tenders, this year and in 2023. These will add a capacity of 15 gigawatts compared to the current capacity of 700 megawatts.