Geopolitics has jumped ahead of market fundamentals at the beginning of 2022 as the major driver behind higher global oil and gas prices. Fears of a confrontation between the US-led NATO powers and Russia over the future of Ukraine have helped to push crude above $90/b.
With concerns growing over dwindling global spare capacity, major producers in the Gulf region find themselves once again in a key position to ensure global demand is met by ample supply.
How the region’s producers will respond to the unfolding crisis in Ukraine and steer a pathway through the evolving relationship between the great powers of the US, Russia and China was the subject of discussion at “The Gulf in Global Geopolitics: Navigating Great Power Competition” roundtable, part of the Gulf Intelligence UAE Energy Forum.
Jonathan Fulton, assistant professor of political science at Zayed University, set the scene for the discussion, laying out the big picture on the international forces impacting the Gulf region. Fulton said the world is living through a period of transition in international relations, where the post-Cold War era of US hegemony is being challenged by resurgent great powers, Russia and China.
“Clearly by 2008 and if not before Russia had decided to pursue a more activist role, instead of acting mostly as a follower it was going to set the agenda for itself,” said Fulton, commenting on the current status of international geopolitics.
Aside from interventions in Syria and Libya, in the Middle East a more active Russia has seen the Kremlin form a key strategic economic alliance with oil producers through the OPEC+ producer grouping, which has aligned its oil output policy with that of the major Gulf states and traditional US allies led by Saudi Arabia. With Russia’s 10 million b/d of current output, the grouping of producers currently controls around 45% of global supply, giving it tremendous power to influence prices.
China’s faster economic recovery from COVID-19 has highlighted the importance of OPEC+ to Beijing to ensure stable energy prices for the world’s second-largest economy. However, unlike Russia, the Chinese government has been reluctant until now to encroach on the strategic sphere of influence maintained by the US military presence in the Middle East.
“China has become much more comfortable in challenging the US in a lot of ways,” said Fulton, adding that the Cold War concept of a West is now a “tired notion” because of growing differences between the US and its traditional allies among the main European Union powers on a range of subjects since the global finance crisis in 2008.
The latest example was on Jan. 26 with China and Saudi Arabia discussing greater defense cooperation amid a surge in Beijing’s military equipment exports to the region. This comes on the back of Gulf oil producers already sending about 60% of their crude east to fuel Asian markets along with the majority of their liquified natural gas.
Gulf countries fear abandonment
The second big trend is the emergence of “Strategic Competition” or “Great Power Competition.” The policy of focusing on China and Russia as the major threats, which began under US President Donald Trump, has been continued under the Biden administration, said Fulton, adding that this change has raised a number of strategic challenges for Gulf states.
According to Fulton this has led to a greater “fear of abandonment” among Gulf countries now beginning to question US guarantees to defend the region against all future threats, despite its importance to stable energy supplies to the global economy and prices.
Security risks around energy infrastructure in the Gulf were highlighted on Jan. 17 when a drone and missile attack hit fuel trucks near an Abu Dhabi National Oil Co facility in the UAE.
According to the S&P Global Platts Oil Security Sentinel, last year saw a record 31 security incidents targeting energy infrastructure in the Gulf, which depends on US military support and technology for air defense.
“America’s interests in freedom of navigation, global energy markets and Israeli security have shaped a lot of what it is meant to do in the Middle East and in the Gulf. What we have seen in the past couple of decades is those interests have changed,” concluded Fulton.
Despite the changing relationships between the world’s great powers and energy consumers, the challenge for the Gulf of how to navigate geopolitics remains the same.
Source: Platts