The MED This Week newsletter provides expert analysis and informed insights on the most significant developments in the MENA region, bringing together unique opinions on the topic and reliable foresight on future scenarios. Today, we turn the spotlight on the increasing importance of the Mediterranean region for European energy security.
The Ukraine invasion upset already uncertain and volatile global energy markets. Whereas the Kremlin weaponised its natural gas supplies to Europe, leaving the bloc scrambling to find sufficient provision, EU members implemented eight packages of restrictive measures, including embargo on seaborne Russian oil imports which kick-started on Monday.
A day before, ministers from OPEC+ countries stressed the importance of sticking to production cuts, denying an output increase to counter the potential loss of Russian crude oil supplies. Their meeting comes as Europe’s “price cap” proved to be ephemeral, as currently Russia’s crude already sells below it ($54/barrel, vs the agreed $60/barrel cap).
Within this context, the MENA region – with its many exporters of oil and gas – has become increasingly central to Europe’s energy security.
The experts of the ISPI MED network react to the high increase of energy markets volatility and its consequences in the MENA region.
Oil and gas don’t give MENA suppliers the same leverage
Losing the main supplier of natural gas by far has thrown Europe into its worst “N-1” scenario. This means that all remaining suppliers acquire more and more importance, among them Algeria’s and Qatar’s. The two countries together provide around 17% of the EU’s total natural gas imports, with Algeria making up almost three quarters of that share. It is therefore inevitable that these countries will acquire much more political leverage over the next few years, as Brussels and its member states realize that they cannot afford to challenge or antagonize any more suppliers.
On oil, the picture is more complex. Despite the ban becoming effective this Monday, the EU had already largely got rid of Russian seaborne crude for months, and had done this by buying more crude from other sources. By and large, Russian crude oil did not disappear from the global markets, but was simply redirected to other destinations (mainly India and China), being sold at a discount. In this case, MENA countries such as Saudi Arabia and the UAE become more relevant for the EU, but do not appear to be acquiring further political “points”.
Matteo Villa, ISPI Senior Research Fellow
Why Algeria should not underestimate Europe’s decarbonisation
Energy exports have historically constituted the backbone of Algeria’s financial stability. For this reason, the rise in global oil and gas prices over the past few months has been a shot in the arm for Algeri, especially after the dire economic consequences of the Covid-19 pandemic. Yet, oil and gas cannot serve as the country’s financial foundation forever. As the EU slowly moves towards decarbonisation, Algeria will need to tap into its striking potential for renewable energy production to maintain the key role it plays in the European market.
At the moment, high energy prices might make investments in renewables less appealing for Algerian authorities, but this shift seems inevitable. In this, the EU and the US can play a pivotal role in assisting the North African country down the long path towards energy transition and economic diversification.
Michael Hochberg, The Oxford Institute for Energy Studies
The UAE has recognized an unexpected opportunity
The UAE has increased its planned energy capital spending for the next five years by nearly 20% to accelerate its upstream expansion plans. This investment of $150bn for 2023-27 has been in the making for some time, however, near-term market opportunities emerged as a result of the war in Ukraine. Indeed, Abu Dhabi has accelerated its efforts to expand its oil production capacity to five million barrels per day by 2027. The country is also moving swiftly forward with plans to bolster its position as an LNG exporter. The UAE is also set to host next year’s COP28 climate conference and is keen to show that it is taking concrete measures to achieve carbon neutrality by 2050.
Meanwhile, OPEC+ on Sunday kept the oil production policy unchanged. It was clear that the group adopted a cautious approach and a “wait-and-see” attitude, as it faces a period of short-term unpredictability of supply and demand not seen in decades. The decision by OPEC+ is expected to hold for at least a few months unless urgent circumstances call for a policy change.
Naser Al-Tamimi, Political Economist and ISPI Associate Research Fellow
Europe’s energy crisis is a windfall for Saudi Arabia
“Driven by the urgent need to stop oil and gas imports from Russia, Europe has turned to the Gulf, including to Saudi Arabia, to both help alleviate the continent’s current energy crisis, and to explore options for longer-term partnerships on alternative fuels such as hydrogen. European hopes to deprioritise the Middle East in favour of the Indo-Pacific have effectively been upended. That is good for Saudi Arabia, which wants strong international – including European – engagement in matters ranging from regional security (especially with regard to Iran and Yemen) to trade. The Saudi Arabia’s number one priority is to push ahead with its economic development and diversification agenda; a Europe that is eager to work with the Kingdom can only be helpful in this regard.”
Tobias Borck, Research Fellow, Middle East Security Studies, RUSI