Saudi Arabia has indicated to western allies that it is prepared to raise oil production should Russia’s output fall substantially under the weight of sanctions, according to five people familiar with the discussions.
The kingdom has resisted calls from the White House to accelerate production increases despite oil prices trading near $120 a barrel, the highest level in a decade, arguing that the energy crunch could get significantly worse this year. Saudi Arabia believes it needs to keep spare production capacity in reserve.
But fears of outright supply shortages have risen after the EU launched another round of sanctions against Moscow, including a ban on importing seaborne cargoes of Russian oil into the bloc.
The EU has also agreed on a deal with the UK to bar the insurance of ships carrying Russian oil later this year, a move analysts said was likely to severely curtail Moscow’s ability to redirect oil to other regions.
“Saudi Arabia is aware of the risks and that it is not in their interests to lose control of oil prices,” said one person briefed on the kingdom’s thinking.
Oil prices fell on Thursday, dropping to a low of $112.80 a barrel in early trading from $116.29 at the close on Wednesday. Prices hit a two-month high above $120 a barrel this week.
Saudi Arabia’s view is that while the oil market is undoubtedly tight, which has buoyed the rise in prices, there are not yet genuine shortages, according to diplomats and industry sources briefed on the discussions, which came ahead of a monthly meeting of the Opec+ oil producer alliance on Thursday.
But that could change as the global economic recovery from Covid-19, including the reopening of major cities in China, boosts demand, while the likelihood of Russia’s oil output declining substantially has increased. Russia was producing more than 10 per cent of global crude before its invasion of Ukraine.
There have been tensions between the US and the Saudi leadership, including with Crown Prince Mohammed bin Salman, the kingdom’s de facto ruler. Saudi Arabia has repeatedly rejected calls from the White House and the G7 to accelerate production increases immediately.
But several visits in recent weeks from a high-level US delegation, including
Brett McGurk, White House coordinator for Middle East policy, and Amos Hochstein, White House energy envoy, have helped improve the relationship, according to a person familiar with the diplomacy.
People familiar with the talks said Saudi Arabia had agreed to a shift in tone to try to calm prices as part of a rapprochement with Joe Biden’s administration.