Saudi Arabia: A key role in the Middle Eastern energy game

Saudi Arabia: A key role in the Middle Eastern energy game

Emilio Fabio Torsello
The failure of the Doha summit is only the latest result of Riyadh's attempts to stem the return of its historic rival, Iran, to the market. In the meantime, the Saudis are entering into agreements for the supply of oil and are developing production sites. The freezing of crude oil production now seems far off

Following the end of the sanctions and the return to the energy market of a key country such as Iran, the tandem is between Saudi Arabia and Russia, with the former to take the lead on key issues such as production and oil prices and the latter to lend support. The failure of an agreement in Doha is one of the first consequences of this game between the parties. Keeping the ranks for all, however, is Riyadh, whose veto has effectively blocked any further agreement on a limit to the global crude oil production level. On the table is the - still unresolved - issue of Iran: Tehran is asking to be excluded from the agreement on the blocking of crude oil production, in order to return to the export and production levels prior to the international sanctions. A request that Saudi Arabia has considered unacceptable, compromising virtually every positive outcome of the summit.


The key role of the Saudis in the Middle East, following Iran's return to the market

The key individual, Mohammed bin Salman, deputy crown prince of Saudi Arabia, would have effectively woven the threads of the failure of the agreement in Doha. Backstage, in fact, it is said that he telephoned the Saudi delegation in the middle of the night, with the peremptory order to leave the meeting. An episode that would have backed Riyadh’s oil minister, Ali Naimi, even further into a corner. It was again Salman who caused panic among investors and traders of the crude oil market when - 2 days after the Doha summit - he reiterated that Saudi Arabia could further increase production to keep pace with its regional opponent, Iran (in the past, the second largest OPEC exporter). The increase in activity could amount to 10%, equal to 11.5 million barrels per day, with anothermillion barrels within a period of 6 - 7 months.
Saudi Arabia is also preparing to invest in the energy industry in the Middle East and North Africa. According to a report published by Arab Petroleum Investments Corporation (APICORP), in fact, fund of over $900 billion is expected in the area. According to the Development Bank based in Saudi Arabia, $289 billion have already been committed to the region. In the Gulf, Saudi Arabia, together with the United Arab Emirates and Kuwait, will be the largest investors.


Saudi Aramco: a national company and battering ram for exports

To this, in-house transactions are added, carried out by companies such as Saudi Arabian Oil Co. (Saudi Aramco) and by Saudi Basic Industries Corp. (SABIC) which are expected to be planning a project to construct a refinery capable of generating chemical products directly from crude oil. The plant is expected to be built in Yanbu, on the Saudi coast of the Red Sea.
The international weight of these 2 companies is not to be underestimated: Saudi Aramco is the world’s largest oil exporter while SABIC is the world’s second largest petrochemical producer. Saudi Aramco recently announced its plans to invest also in the Khurais oil plant, in the expansion of the largest Saudi refinery, Ras Tanura (with a capacity of 550,000 barrels per day) and to have launched gas production from the offshore Hasbah gas field (from its 7 platforms located approximately 150 kilometers northwest of Jubail, in the Gulf. Hasbah will provide up to 1.3 billion cubic feet of gas per day, while the adjacent site of Arabiyah will produce approximately 1.2 billion cubic feet).
News has also come out in recent weeks that Sudi Aramco could put 5% of its value on the stock market for a total of $125 billion.


Riyadh and its relations with Egypt: agreements worth over $20 billion

Among the latest agreement entered into by Riyadh, there is one worth $23 billion with Cairo. Saudi Arabia will in fact supply the oil demand of Al-Sisi’s Egypt over the next 5 years, in addition to a $1.5billion agreement to develop the Sinai region. This involves 700,000 tons of oil products per month for 5 years. Signing this agreement are Saudi Aramco and the Egyptian General Petroleum Corporation. The Saudi fund for the development will pay Aramco for oil products and will receive, in instalments, the same amount from Egypt. The agreement is part of the financial support announced during the King of Saudi Arabia’s visit to Cairo at the beginning of April.