Politics in Oil and

Gas Industry
Economic and Political
Course Code: ELEP 423
Factors Driving Oil Strategy
of Gulf Arab States -2
4th year Students -Term8
2022-2023
Lecture 9

College of International Transport and Logistics

Dr.Tarek Abbas
Energy & Petroleum Logistics Management Department
Economic Diversification Tools for Gulf Countries

• In order to the Gulf countries to achieve

diversification in the economy that’s
less dependent on oil in the short- or
medium-terms, several parameters will
be considered.

• The process to diversify takes time,

perhaps even 15 to 20 years , but it
would involve the following :-

GCC GDP by main economic sectors,2016

1. Reforming education.
2. Building a capable and motivated
national workforce outside of the public
sector.
3. Establishing a science, technology and
innovation national infrastructure
system.
4. Developing legislation and legal
frameworks to involve citizens more
closely in wealth and economic
diversification efforts.
• For a long term , such above policy

Average price in US $ per barrel

will minimize the current trends
concerning oil continuing to dominate
the Gulf’s income revenue exports .

• Oil prices continuing to be critical in

maintaining the Gulf’s domestic
sectors, national development
programs and political stability. Average annual OPEC crude oil price from 1960
to 2023(in U.S. dollars per barrel)

• Ultimately, the Gulf's actions should maintain certain oil price levels and its market
share are intended to feed its economy and supporting its national security.
The Latest Gulf Oil Price Strategy

• The Gulf’s third oil strategy era was

most evident in the October 2022
decision by Gulf state members of
OPEC+ to reduce oil production by 2.0
million barrels per day from the August
2022 production level, starting in
November 2022 and continuing until
OPEC share of world crude oil reserves,2020
December 2023,despite pressure from
• Recent analyses suggest the decision was
its traditional western allies: USA - UK -
political in nature, but several economic
France- Germany. drivers provide rationale for the decision.
• Opposite figure sheds
some light on the recent
OPEC+ oil dynamics.
From the start of Feb 2022
and before the Russian
invasion of Ukraine on
February 24, the average
oil price was U.S.
Daily crude oil prices versus OPEC +production
$87/barrel and OPEC+
As a result of the Russian invasion of Ukraine, the oil
countries were producing
production increased gradually, also the oil price to more
41 million barrels a day
than U.S. $120/barrel.
 • The oil prices were about
U.S. $98/barrel when
Biden visited Saudi Arabia,
though the White House
stated that President
Biden’s visit was not
primarily focused on
requesting an oil
production increase. Daily crude oil prices versus OPEC +production

• OPEC+ continued to gradually increase oil production, reaching almost 44.0 million barrels per day
in September and causing oil prices to drop as far as U.S. $80/barrel. Releasing more oil from the
U.S. strategic petroleum reserve was one of the major factors that brought oil prices down.
• However, an explosion on the Nord Stream natural gas pipeline
along the bottom of the Baltic Sea near the Danish island of
Bornholm. On September 26,in addition to high global inflation rates
and the already developing geopolitical conflict between Europe and
Russia, raised the oil price to U.S. $90s/barrel. Since then, the price
has been fluctuating within the upper U.S. $80s/barrel.

Daily crude oil prices versus OPEC +production

• The above description of OPEC+
production dynamics shows that
Gulf OPEC+ members (mainly Saudi
Arabia) were responding to oil
market fluctuations and making the
decision to stabilize oil prices to the
desired level regardless of their
world partners’ interests.

• There is a gray area between economic interests and political pressures, and the latter is
often exercised to support and protect national wealth. Similarly, economic growth is
frequently utilized to achieve political gains and ultimately to protect national security.
The relation of Economic Interests, Politics & National Security and
the Impact on the Gulf’s Oil Strategy

• A primary pillar of national security is the maintenance of

economic stability and societal prosperity. Therefore, protecting
national security by preserving economic interests involves the
careful calculation of political objectives.

• Such maneuvers require balanced relations with the world’s

powers and indirect influence on main international actors to
protect national interests.

• Therefore ,the Gulf states’ oil production strategy aims economic

prosperity; hence, it requires soft power tools including trade,
investment and diplomacy to achieve their goals.
• In the present era, the Gulf is no longer dependent on
primarily its traditional partners, i.e., the U.S. and
Europe, on particular issues . Where the Gulf states
are practicing a strategy of protecting their national
interests and security by the following :

i- Monetizing their hydrocarbon assets.

ii-Balancing relations with the world’s powers.

iii-Practicing indirect and soft power to influence

international actors.
• A key turning point in the Gulf's international relations
strategy was when the U.S. started reducing its military
presence in the region in the 2010s.

• The reduced presence of the U.S. in the Gulf increased

the competition between Saudi Arabia and Iran over the
region's leadership.

• Thus, the Gulf region is driven to adopt a balanced

relation strategy to achieve its visionary goals. These
goals are an opportunity for other major international
actors including China and Russia to accomplish their
visionary plans.
• The Gulf’s relations with China and Russia offer physical
evidence of the Gulf's strategy development.
Growing Gulf-China Relations: A Case Study

• In a recent statement, China’s President

confirmed that “China will not rush its clean

energy transformation.” Saudi Crown Prince also

recently expressed similar intentions reflecting

all Gulf hydrocarbon producers’ opinion.

• These intentions involve adopting a balanced

approach through a gradual transition toward

sustainable energy sources and increasing

investments in fossil fuel sectors.

• In 2020, China’s crude oil demand level

Capacity in 1000 barrels per day

was 20% of the world’s total demand ,

the second highest in the world with a

consumption of 14.2 million barrels per

day. The Gulf states supplied 26% of

China’s total demand for crude oil.

Crude oil refinery capacity in China from 1970 to
2021 (in 1000 barrels per day)

• Moreover, China’s refining capacity was at almost 17.0 million barrels per day, and
it is expected to reach 18.8 million barrels per day by end of 2023, giving it the
world’s highest capacity. This presents an opportunity for the Gulf that aligns with its
economic goals.
• Furthermore, the Middle East is a vital region
for China’s Belt and Road Initiative (BRI).

• The objective of the BRI is to establish

trading routes connecting China with the rest
of the world. It involves enormous
infrastructure investments to serve its
purpose.

• The BRI is also an opportunity for the Gulf to Smart City

diversify its economy beyond hydrocarbons
and support its other economic sectors as
agriculture , food security, renewable energy,
5G telecommunications and smart cities.

• All Gulf states signed the BRI’s memorandum

of understanding (MOU) in 2018.
Gulf Relations with Russia and Shared Hydrocarbon Interests

• Compared to Gulf trade with China , U.S. and Europe, the volume of

trade between Russia and the Gulf states is relatively low.

• Nonetheless, it grew a remarkable 185% from 2010 to 2019, reaching

U.S. $4.4 billion in 2019.Trends indicate that trade will continue to

grow for merchandise and services involving the agriculture, military,

nuclear energy, oil, gas and petrochemical sectors.

• Additionally, most Gulf states have invested in the Russian economy

via the Russian Direct Investment Fund and oil and gas companies.

The Gulf investments in Russia are reported to be some of the

largest and most influential.

• Most of the Gulf investments are in the
• Mubadala, an Emirati state-
infrastructure, energy and petrochemical
owned funding company, has a
sectors.
stake of 44% in the Russian

Gazpromneft-Vostok oil and gas

company.

• While Qatar Investment Authority

(QIA) owns 19% of Russia’s

Rosneft energy company.

Gulf investment volume in Russia in 2019
• Among the Russia-Ukraine war, Qatar and the
UAE announced that they were putting their
investments in Russia on hold; however, there
is no indication that they are selling their
assets and withdraw of Russia completely.

• This could be because the Gulf states and

Russia share common interests in the
hydrocarbon industry, and both desire
maintaining stable and prosperous national
economies.
• Relatively identical to the Gulf, the Russian fiscal
budget is highly dependent on hydrocarbon export
revenues. Between 2016-2020, average fuel and
energy exports accounted for almost 68% of
Russia’s total merchandise exports.

• Hence, competition between Russia and Gulf

states for oil market shares in Europe and Asia can
be severe. Such competition was witnessed in
2018-2019 when Russia and the Gulf states looked Commodity structure of export of
forward to cover Iran’s oil share with China. the Russian Federation in 2018

• The late Russia-Saudi oil price challenge in the start of 2020 serves as another
example. The fiscal breakeven oil price for Russia is not less than U.S. $40/barrel
which forces Russia to collaborate with OPEC for stable income.
• The primary drivers that have encouraged Gulf-
Russia cooperation are the new global oil market
trends that emerged in the 2010s:

I-The U.S. shale oil revolution, which claimed a

considerable share of the oil market.

II- The global energy transition, which has led to

calls for policies that phase out hydrocarbon-
based energy technologies.
• These two factors have catalyzed the oil supply to surpass demand and have
played a major role in lowering oil prices to levels that might not fulfill the needs of
net-oil exporting countries.
• In 2016, efforts by Saudi Arabia and

Russia resulted in the Vienna Agreement

between OPEC and non-OPEC

countries (OPEC+) to coordinate

production to stabilize oil prices.

• The Gulf states and Russia both seek to

strike a balance between gaining more The global oil market

• One should note that Russia does not have a huge
oil market share at the expense of low oil
financial resource capacities to widen its presence in
prices, on the one hand, and losing oil
the Gulf region. As a result of its comparatively not
market share in favor of maintaining high
strong economy, Russia’s political influence in the
oil prices, on the other.
region is also relatively limited but growing regularly.
Thank YOU
Dr.Tarek Abbas