Saudis Expand Oil War Against Russia into Europe

Saudi Arabia is fighting for market share and punishing Russia for supporting Bashar Assad.

Oil refineries in Rotterdam, the Netherlands at dawn, April 25, 2011
Oil refineries in Rotterdam, the Netherlands at dawn, April 25, 2011 (Jack Cousin)

Saudi Arabia appears to be expanding its economic war against Russia by encroaching on its European oil market.

Reuters reports that Russia has for years been muscling in on Asian markets where Saudi Arabia was once the unchallenged dominant supplier. “But now Riyadh is retaliating in Moscow’s backyard of Europe with aggressive price discounting.”

From global majors such as Shell and Total to more modest Polish energy firms, oil refiners in Europe are cutting their longstanding use of Russian crude in favor of Saudi grades as the world’s top exporters fight for market share.

The news agency argues that this has nothing to do with the sanctions Western countries imposed on Russia after it occupied and annexed the Crimean Peninsula from Ukraine in early 2014. “Instead it is a commercial battle for customers as both exporters ramp up their output despite weak world oil prices.”

But there is clearly a geopolitical dimension as well.

Unlike in the past, the Saudis have not cut production in the face of falling oil prices. Nor has the rest of the OPEC cartel.

Their aims are twofold. One is to squeeze America’s shale oil producers who require higher prices to remain competitive with conventional oil production. That part of the strategy isn’t working. American frackers turn out to be more nimble than the Saudis might have expected.

The second goal was to punish Saudi Arabia’s rivals for their support of Syria’s Bashar al-Assad.

Since the uprising against Assad turned into a sectarian and proxy war, Saudi Arabia has backed the largely Sunni opposition while Iran and Russia have stood by the Syrian dictator.

Whether the Saudis took any direction from Washington in this is unclear. But as the Atlantic Sentinel reported last year, whatever the kingdom’s motives, Russia will almost invariably see the hand of its ally, America, in this strategy.

Saudi Arabia and the United States both oppose the Assad regime while the latter seek to dissuade Russia from further aggression in Eastern Europe without risking a war there.

Saudi Arabia, for all its laments about President Barack Obama abdicating American leadership in the Middle East, must also worry about Russia’s increased involvement in the region. Vladimir Putin recently deployed fighter jets and troops to Syria to prop up Assad’s government — by targeting the very rebels the Saudis have supported.

European countries, for their part, want to reduce their dependence on Russian oil and gas — a dependence Russia has all too often used as a weapon.

In the years leading up to the present crisis in Ukraine, Russia repeatedly cut off natural gas supplies to its former Soviet republic when it transited half the gas Russia sold Europe.

The European Union is trying to get more energy from Caspian Sea states like Azerbaijan and hoping that the United States will lift a forty-year-old ban on overseas oil sales. The Republican majority in the House of Representatives voted to do just that earlier this month but it is unclear if the Senate and President Obama, a Democrat, will agree.

Last year, this website argued that if there was a concerted effort to “punish” Iran and Russia, it did not appear to be working.

Neither Iran nor Russia appears to have changed its behavior under economic pressure. The former has resumed nuclear talks with the West but they have yet to produce an accord. Russia is not retreating from Ukraine. It seems to prioritize the strategic imperative of keeping this crucial Russian borderland out of Europe and NATO over whatever economic pain the West is able to inflict upon it.

Iran has since signed a nuclear deal with the West that is meant to prevent it from developing atomic weapons. It appeared to have calculated that the costs of an economic war with Saudi Arabia and the United States — aggravated by sanctions in its case — were no longer worth it.

Russia hasn’t yet come to the same conclusion. It has stepped back from the brink in Ukraine but not yet committed to respecting the country’s sovereignty. And it has now opened another front in Syria.

The Saudis’ move into Europe should give the Russians pause and may convince them to walk back their strategy. Or, just as likely, cause them to double down.