The Gulf states: Beneficiaries of the Russia-Europe calories battle?


The Gulf states are frequently overpassed as oblique beneficiaries of the Russia-Europe calories battle. In what techniques and to what extent have they leveraged it? Are those advantages sustainable?


The present calories battle between Russia and Europe predated, however was once markedly intensified by way of, Russia’s invasion of Ukraine in February 2022. The protagonists are deploying a spread of calories guns geared toward expanding the prices of escalation or last in Ukraine (for Russia) in addition to of defying Russia’s movements in Ukraine (for Europe). Those have upended international calories business flows and higher calories costs in 2022 relative to the previous a number of years; they have got additionally impacted a much wider vary of non-energy items and services and products in addition to diplomatic ties.

For the reason that calories — its affordability, availability, and sustainability — underpins trendy civilization, the query “who’s profitable the calories battle?” is a pertinent one. Claims that Russia is the victor are countered by way of assertions that this can be a “fantasy” since Moscow faces “financial oblivion” and everlasting decline as an calories superpower. A extra nuanced viewpoint argues that whilst Russia is also a non permanent winner, Europe will triumph within the calories battle over the longer term. Except for the protagonists, India and China also are often cited as winners for the reason that they’re primary calories importers that experience benefitted from discounted inflows of Russian fossil fuels kept away from in Europe. Only a few analyses, despite the fact that, speculate on the advantages of the calories battle for the Arab Gulf states or the mechanisms wherein they have got benefitted, deficits this newsletter tries to proper.

Mechanism #1: Arbitrage

Some Gulf states have leveraged the calories battle by way of enticing in arbitrage. This refers to substituting reasonable Russian gas oil for regionally produced oil utilized in energy vegetation to generate electrical energy, thus liberating up extra home oil for export to Europeans looking to cut back their dependence on Russian crude oil and oil merchandise. The apply is most commonly restricted to Saudi Arabia and Kuwait, the place oil accounted for 39% and 41.5% of energy era respectively in 2020. A find out about in October 2022, for instance, famous that the rise in gas oil intake all the way through summer time 2022 didn’t lead to a decline in Riyadh’s oil exports as a result of strangely massive volumes of Russian gas oil, greater than two times up to the similar length in 2021, have been being imported (without delay and thru different ports) and burned rather than home oil.

On the identical time, upper volumes of Saudi (and Gulf) oil discovered their strategy to Europe in 2022. Saudi Arabia, the United Arab Emirates, and Kuwait exported extra oil to Europe all the way through the primary 10 months of 2022 in comparison to 2021 (see chart 1); in terms of Saudi Arabia and the UAE, extra oil was once despatched to Europe between January and October than in all the previous 3 years blended. The similarity of Gulf crude, in particular Saudi Aramco’s Arab Mild, to Russia’s Urals crude makes the previous a excellent change. Unsurprisingly, Europe’s proportion of Saudi oil exports between January and July 2022 higher to 20-25% of overall oil export income, up from 10-15% in earlier years.

Even though Ecu gross sales are a non permanent fillip for Gulf economies, Europe’s declining oil call for — underpinned by way of electrification of automobiles and public shipping; gas potency necessities for maritime, air, and highway shipping; and estimates that it hit top oil call for in 2005 — renders the continent a slightly unattractive long-term marketplace for Gulf exporters in comparison to Asia and Africa.

Chart 1: Exports of Gulf crude oil and petroleum merchandise to Europe

Gulf oil exports to Europe

Observe: Oil exported from Egypt’s Ain Sukhna terminal is attached to and originates from Yanbu in Saudi Arabia. Supply: Refinitiv Oil & Transport Analysis

Mechanism #2: Nativizing Russian oil for onward export

A moment means Gulf oil exporters have monetized the calories battle to their get advantages is by way of uploading Russian oil for mixing/re-export to South Asia and Europe. Imports of Russian crude and oil merchandise have higher considerably since February, with Oman and the UAE uploading extra Russian oil within the first 10 months of 2022 than previously 3 years blended (see chart 2). Certainly, Russian vessels unloading their cargoes have been blamed for inflicting congestion on the port of Fujairah all the way through summer time 2022. Savvy Gulf refiners are more likely to profit from the loophole in Ecu Union regulation set to come back into impact on Feb. 5, 2023 that permits oil merchandise exported from refineries within the Gulf (or different refining hubs) however fed by way of Russian crude to flee EU sanctions since Russian crude is deemed to were “considerably remodeled” during the refining procedure.

With Europe determined for non-Russian oil merchandise equivalent to diesel, a scenario made extra acute by way of the closure of a few U.S.-based refineries previously few years, merchandise from Kuwait’s newly expanded and upgraded al-Zour Refinery, which lately despatched its first cargo to Europe of aviation gas, in addition to from Abu Dhabi’s Ruwais refinery, which is because of be totally commissioned in 2025, will in finding keen consumers at the continent.

Chart 2: Gulf imports of Russian oil

  2019 2020 2021 2022 (until finish Oct)


     Crude (barrels)

     Merchandise (heaps) 














     Crude (barrels)

     Merchandise (heaps)












1,494, 210

Supply: Refinitiv Oil & Transport Analysis


The nativization tactic may be feeding hypothesis that at primary transhipment hubs equivalent to Fujairah, oil cargos may well be delivered by way of Russian ships, reloaded onto ships flying non-Russian flags, after which dropped at Ecu ports as Fujairah-origin oil. This tradition, which takes a web page out of the sanctions evasion playbook of Iran that rebrands oil bought to China as “Malaysian” following a port name in Malaysia, could be a win-win for Russia and the UAE. For the latter, despite the fact that, there’s a possibility that Dubai’s recognition as a significant hub for illicit business will most effective aggravate.

Mechanism #3: LNG international relations with Europe

Oil apart, the calories battle may be facilitating a broadening of the Gulf’s consumer base for liquefied herbal fuel (LNG) to incorporate extra Ecu shoppers past the UK, Italy, and Spain.

Hitherto, smaller LNG exporters from the Gulf, particularly Oman and the UAE, had targeted nearly solely on Asia because of Russia’s stranglehold on pipeline fuel exports to Europe and the upper premiums commanded by way of LNG in northeast Asia. As for Qatar, whilst Europe accounted for 15% of its LNG gross sales in 2021, Asia was once nonetheless its dominant marketplace with a proportion of just about 80%. The calories battle has, on the other hand, starkly reiterated Russia’s choice to weaponize Europe’s fuel dependency and let the continent “freeze, freeze” against this to Qatar’s depoliticized method, wherein it persevered to promote reduced in size fuel amounts to the UAE regardless of the latter taking part in a 43-month-long blockade in opposition to it. One measure of the good fortune of Qatar’s LNG international relations is the truth that Europe’s proportion of Qatar’s LNG gross sales by way of revenues jumped to one-fifth of the overall in the second one quarter of 2022 in comparison to 10-12% in the similar quarter all the way through earlier years; this was once in large part a end result of upper spot LNG costs in a Europe frantically looking to fill fuel garage forward of wintry weather versus upper LNG volumes.

Extra considerably for Qatar’s long-term LNG ambitions and with this its international affect is the 15-year settlement concluded in November 2022 by way of Germany with state-owned QatarEnergy for the availability of two million heaps of LNG every year from 2026. The deal, which was once hailed by way of the Gulf state’s calories minister as “first ever long-term LNG provide to Germany,” seems to be a vital concession on Qatar’s phase since its desire was once for a for much longer length comparable to the 27-year deal to offer China’s Sinopec with LNG signed an insignificant 8 days previous. Similar to about 6% of the amount of Russian fuel Germany imported in 2021, the QatarEnergy deal won’t utterly change Russian fuel however would possibly inspire application corporations in different Ecu nations to conclude their very own offtake preparations with Doha, which is itself in quest of consumers for its increasing LNG manufacturing. The UAE may be more likely to goal Ecu markets to monetize the expensive construction of its bitter fuel fields and the development of a brand new and moment LNG export terminal, either one of which have been deliberate prior to 2022.

However the Gulf’s up to now a hit LNG international relations in Europe, the hot risk by way of an unnamed Qatari diplomat that investigations into the rustic’s alleged bribery of EU parliamentarians may just “negatively have an effect on” ongoing calories negotiations will take a look at Qatar’s recognition as a competent and apolitical LNG provider.

Mechanism #4: Renewable calories international relations with Europe

Probably the most anticipated results of the calories battle is a large ramping up of the deployment of renewable capability throughout Europe to spice up calories self-sufficiency whilst lowering reliance on fossil fuels and Russian calories particularly. For example, following discussions that started in Would possibly 2022, each the Ecu Parliament and Ecu Fee have recommended expanding the objective for renewables in Europe’s calories combine from 40% to 45% by way of 2030 as a part of the REPowerEU plan. For the Gulf states, making an investment in Ecu renewable calories initiatives demonstrates coverage alignment, which in flip facilitates goodwill for gross sales of Gulf hydrocarbons that can proceed to be required all the way through the calories transition.

On this regard, in October 2022 the Qatar Funding Authority, the rustic’s sovereign wealth fund (SWF), agreed to spend money on RWE, a significant German application, to fortify its plans to include inexperienced electrical energy as its core industry. In go back for partially investment RWE’s acquisition of renewable calories belongings from a U.S. calories corporate, QIA will obtain round 9% of RWE’s stocks. The deal is more likely to support potentialities for finalizing ongoing fuel provide negotiations between QatarEnergy and RWE. As for the UAE, the purchase in October 2022 of an undisclosed stake by way of Abu Dhabi’s SWF Mubadala in Skyborn Renewables — an offshore wind developer founded in Germany with an international portfolio of initiatives — coincided with the Abu Dhabi Nationwide Oil Corporate’s (ADNOC) settlement the former month to ship LNG and diesel to Germany in past due 2022 and 2023.

To make sure, the renewable calories investments cited above have been obviously pushed by way of a robust industry case that comes with diversifying funding portfolios of SWFs and gaining experience in renewable applied sciences. Those states, via their respective parastatals, had invested in renewable calories initiatives in Europe previous to the outbreak of the calories battle, together with London Array and Hywind Scotland by way of Masdar, a subsidiary of Mubadala, in addition to sun parks within the Netherlands by way of Qatar-owned Nebras Energy. However similarly, it does now not harm the Gulf states to be noticed to fortify Europe’s net-zero ambitions whilst plying the continent with oil and fuel.

Mechanism #5: Make stronger ties with Russia

Along with sure engagement with Europe all the way through the calories battle as mentioned above, the Gulf states have additionally maintained excellent members of the family with Europe’s nemesis, Russia. They’ve completed so in two techniques, the primary of which is during the OPEC+ platform. A protracted-standing Russian international coverage function is to be said, identified, and handled as a perfect energy. Via declining to significantly entertain tips that OPEC+ must exclude Russia from per thirty days quotas in line with difficulties with oil manufacturing led to by way of voluntary and authentic sanctions — and therefore building up the scope for Gulf states to pump extra oil at Russia’s expense — the crowd’s key energy agents, Saudi Arabia and the UAE, are reiterating their trust about Russia’s enduring importance for oil markets and regional conflicts. In addition they have little pastime, and most likely restricted capability, to considerably building up oil output since this might put downward drive on oil costs. Even the UAE, which had in the past chaffed at OPEC+ quotas that restrict its plans to extend oil manufacturing capability from 4 to five million barrels in line with day (mbpd) by way of 2025, declared in March 2022 that Russia will “at all times” be a part of OPEC+.

It’s because even with the lack of oil manufacturing because of sanctions — estimated to be between 0.85 and 1.4 mbpd all the way through the primary quarter of 2023 — Russia will nonetheless be the second-largest manufacturer throughout the team by way of a long way. This implies that are supposed to oil costs nosedive sooner or later, OPEC+ will want Russia’s cooperation to stabilize costs.

The second one pathway wherein the Gulf is keeping up excellent members of the family with Russia is by way of refraining from a cut-throat price battle in Asia. The latter is a marketplace historically ruled by way of the Gulf states, however has lately grow to be probably the most few viable markets for Russian hydrocarbons. Russia has been China’s most sensible provider for a number of months, with exports emerging to 1.9 mbpd (or by way of 17% in November 2022 in comparison to a 12 months in the past) in comparison to Saudi Arabia’s 1.6 mbpd (or down 11% from a 12 months in the past). Russian crude oil, bought at reductions that vary between $23 and $35 in line with barrel to benchmark Brent crude costs, are just too excellent to cross up for price-sensitive China; the EU fee cap imposed in December has most effective inspired Asian consumers to hunt additional reductions from Russia. However, Saudi Arabia isn’t unduly fearful partially as a result of fierce Saudi-Russia festival in China has been ongoing for a number of years. Saudi Arabia remains to be simply forward of Russia as China’s most sensible provider for the primary 11 months of 2022 and would possibly take convenience from President Xi Jinping’s pledge remaining month to “extend the size of crude oil business” with Riyadh and different Gulf states, in particular, one assumes, if purchases can also be settled in yuan as an alternative of the buck. Beijing’s apply of diversifying its resources of imported hydrocarbons additionally precludes over-dependence even on reasonable Russian oil ultimately.

In India, Asia’s second-largest oil importer and one this is ruled by way of provides from Iraq and Saudi Arabia, imports of Russian oil have ballooned 14-fold since March 2022. This has higher Russia’s marketplace proportion to round one-fifth in comparison to lower than 3% traditionally. To offer protection to its biggest marketplace, Iraq has undercut the cost of Urals in India by way of a median of $9 in line with barrel, however Saudi Arabia seems unfazed since upper Russian volumes were on the expense now not of Saudi crude however the ones from the U.S. and Africa. Ultimately the sustainability of the Russia-Indian oil business may be challenged by way of the long-term decline of Russia’s oil trade, a topic even sooner than the present spherical of Western sanctions, in conjunction with excessive freight prices and voyage instances between Indian and Russian ports.

Mechanism #6: Monetary providence

In the end, the industrial well being of the Gulf states — and particularly those who undertook reforms to support competitiveness, regulatory potency, and personnel inclusivity over the last a number of years — has benefitted from the calories battle. The providence from upper hydrocarbon costs relative to earlier years, amounting to round $1 trillion between 2022 and 2026 for the Center East oil exporters, is more likely to lead to finances surpluses in 2022 for all Gulf states aside from Bahrain, a trifling oil exporter. The fiscal surplus is a primary for the Gulf Cooperation Council (GCC) as a bunch and for Oman since 2013 whilst it’s going to be the second one in as a few years for the bigger exporters Saudi Arabia and the UAE. The Gulf states also are more likely to be outliers relating to GDP efficiency: In line with estimates by way of the Global Financial institution, the GCC is anticipated to outperform international GDP expansion in 2022 and 2023. In the meantime, inflation will likely be stored at bay by way of a set peg to the U.S. buck for 5 of the six states (with Kuwait keeping up a looser peg) thereby mirroring rate of interest rises within the U.S., by way of fee controls on a large vary of fundamental meals pieces, by way of the availability of extremely backed calories (albeit to a lesser extent within the UAE), and by way of will increase in already beneficiant subsidies to low-income electorate.

The monetary providence must, in idea, increase the foundation for the social, political, and regional peace required to draw international ability and personal funding in addition to to reform structural rigidities that plague Gulf economies. The level to which lengthy sought-after financial diversification plans by way of all Gulf states can also be learned is still noticed; finally, alternatives offered by way of the former oil growth all the way through the early 2000s have been most commonly squandered.

The UAE as a number one beneficiary

It’s the UAE that stands to profit maximum from Europe’s calories battle, a lot more than its Gulf friends. The UAE will proceed to profit from the influx of Russian cash, together with vacationers, actual property purchases, and status quo of native devices of Russian commodities and calories corporations locked out of doing industry in Europe and the U.Ok. It’s because sanctions as soon as imposed have a tendency to be sticky and hard to take away; additionally, there’s a sturdy consensus amongst political and industry leaders in Europe to by no means once more be as calories depending on Russia. The UAE has additionally been conscious to seem to deal with considerations in EU and U.S. coverage circles relating to fortify for Russia. For example, in September 2022, UAE-owned banks in Turkey suspended acceptance of a well-liked Russian card cost device; a UAE financial institution additionally declined to simply accept dirham-denominated cost rather than bucks for Russian oil bought by way of Indian refiners.

Extra considerably for the UAE, it’s going to have the ability to tout and credibly ship on its inexperienced calories credentials, thereby aligning itself with the EU’s Inexperienced Deal to be local weather impartial by way of 2050. As a business spouse that is in a position to supply exports with low carbon depth — therefore lowering the deficit created by way of the possible go out of energy-guzzling Ecu metal and chemical producers — the UAE is more likely to building up its marketplace proportion in Europe for decided on merchandise.

In contrast to its Gulf friends, the calories used to supply offshore oil by way of ADNOC will quickly originate from low carbon resources because of the continuing development of a subsea cable that can ship electrical energy from the mainland’s nuclear and solar energy vegetation. On the subject of aluminum, the UAE already accounts for six.6% of the EU’s imports, making it the bloc’s sixth-largest supply of imported aluminum. Emirates International Aluminium (EGA), the UAE’s biggest corporate outdoor of the hydrocarbon sector, is focused on a vital building up within the manufacturing of top rate inexperienced aluminum (via the similar low carbon calories resources) used most commonly by way of automotive portions producers in Europe for high-end automobiles. Via comparability, Bahrain’s ALBA, the arena’s biggest aluminum smelter, is constrained in its skill to practice swimsuit by way of the rustic’s fiscal capability and territorial measurement, which limits deployment of utility-scale low carbon calories resources. As for Emirates Metal Arkan, it’s making excellent growth in analysis to fabricate greener metal by way of incorporating the usage of inexperienced hydrogen into the metal making procedure. Already, it boasts a decrease carbon footprint than maximum of its competition in China and India because of the usage of herbal fuel as an alternative of coal in addition to the deployment of electrical arc furnaces, whose carbon depth is 75% decrease than conventional blast furnaces. With imports of Russian metal already banned within the EU and with imports of Turkish metal processed with semi-finished Russian metal set to be banned later this 12 months, UAE metal corporations must have the ability to make some positive aspects within the EU on the expense of the latter’s two biggest resources of metal imports.

Different Gulf states are starting to cope with the problem of embedded carbon of their merchandise, with Qatar pronouncing that the growth of its LNG manufacturing capability (from which German utilities usually are offtakers) will likely be accompanied by way of era to seize and sequester related carbon emissions, thus assembly Ecu necessities. However, it’s the UAE that has a transparent first mover benefit some of the Gulf states. The truth that Dubai and Abu Dhabi were running for quite a lot of years an across the world identified certification scheme that tracks and verifies each megawatt of low carbon electrical energy claimed by way of ADNOC, Emirates Metal, EGA, and different corporations may be more likely to be liked by way of shoppers in Europe.


Li-Chen Sim is an assistant professor at Khalifa College within the UAE and a non-resident pupil on the Center East Institute in Washington, DC.

Photograph by way of Simon Dawson/Bloomberg by the use of Getty Pictures

The Center East Institute (MEI) is an impartial, non-partisan, non-for-profit, tutorial group. It does now not have interaction in advocacy and its students’ evaluations are their very own. MEI welcomes monetary donations, however keeps sole editorial regulate over its paintings and its publications mirror most effective the authors’ perspectives. For an inventory of MEI donors, please click on here.



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