The relation between energy supplies and the Ukraine crisis is getting complicated by the day, with a significant impact on the global economy and on energy and commodity prices. Matters have reached a stage where these price spirals are becoming burdensome for all economies, including those in the West.
This has sparked protests in some countries that could see living conditions becoming aggravated as a result of high inflation rates. Some are trying to blame the oil-producing countries, particularly the GCC states. However, matters in the energy markets - due to decisions taken by oil and gas-consuming countries - have gone out of control.
The GCC countries, in turn, have begun to exhaust their excess production capacity. In April, OPEC+ members increased production by 400,000 barrels per day, as agreed upon, but the actual increase did not exceed 10,000 barrels due to the decline in production in some, such as Libya, as well as to the partial boycott of Russian production. This is with the knowledge that the decline in investments in the oil sector in recent years does not allow for significant increases in production capacity now.
This means that no party can compensate Russian oil and gas production even if it wants to do so, requiring pragmatic decisions considering the interests of all parties. And the foremost consideration needs to be the separation of energy supplies from the Ukraine conflict.
Some practical steps have been taken in this direction, as 20 European companies, including the French energy giant TotalEnergies and Italy’s Eni, have responded to Russia’s decision to sell oil and gas in rubles by opening ruble accounts with Gazprombank. Will this mean an end to the boycott of Russian gas and providing energy for European consumers at affordable prices?
Cut down import duty
Such a decision addresses the root of the energy supply crisis and its related high prices. But blaming the GCC countries is nothing more than a diversionary tactic that will add more complications and end up harming consumers. Also, there are other measures that can contribute to alleviating the burden of energy prices.
There are the high taxes by Europe on oil imports, ranging between 80 and 100 per cent, providing huge revenues to their budgets and exceed those generated by oil-exporting countries. The current situation requires a reduction in such taxes to decrease rising prices and inflation rates that harm consumers.
These are just a few of the measures that can be taken to get out of this crisis, rather than accuse oil-exporting countries, especially the GCC, which produce almost to their full production capacity.
A reluctance to invest in oil
The reluctance of Western energy companies to invest in the oil sector for environmental reasons has curbed production capacity. There is the irony of Western countries trying to pressure the GCC states to increase their investments in the oil and gas sector.
This will cost hundreds of billions of dollars that may lead to a significant drop in oil prices in the future, exposing producing countries to significant losses. The alternative lies in joint investment by producing countries and foreign oil companies to share the cost of exploration and development of fields.
It is clear that the strong link between economic requirements and the Ukrainian-Russian conflict has severely damaged global growth and supply chains, including energy and food shipments and prices. The link between political desires and economic realities end up not achieving the desired results, particularly when it comes to dealing with large countries with enormous economic potential and natural resources that allow them to be self-sufficient.
This means that solutions are available if crises are addressed in a pragmatic manner, away from arm-twisting attempts and launching accusations that will not lead to desired results. And end up hurting all…
