The Economist March 26th 2022 Business 69TheGulfbetweenthem
T
o saudi arabia, Qatar is little more than a sore thumb sticking
out into the Persian Gulf. For decades the kingdom has looked
down on its neighbour as an irritating pipsqueak, with which it
has little in common except the desert. Saudi Arabia has histori
cally cut more of a dash in global affairs; the vast fields of natural
gas that Qatar controls have never provided it the same clout as its
rival’s oceans of oil. Saudi Aramco, which produces 12.8m barrels
of oil equivalent per day, has just attained a market value of more
than $2.3trn, making it the world’s secondmostvaluable listed
company after Apple. Alongside it, QatarEnergy, which produces
less than a third as much, looks like an emir’s plaything. Now Rus
sia’s war on Ukraine has also exposed a stark contrast in the atti
tude of the two countries to the world beyond their borders. Their
different approaches to energy geopolitics could have big reper
cussions for both firms, as well as for the West and the East.
Saudi Arabia undoubtedly believes it is on a roll—and in some
ways it is. On March 20th Aramco, the world’s biggest oil exporter,
revealed that soaring oil prices had enabled it to more than double
net profit to $110bn in 2021, when crude averaged around $70 a bar
rel. With oil prices now above $100, the bonanza will grow. The
company plans to raise capital expenditure to $40bn50bn this
year, up from $32bn in 2021. That will help it towards a goal of add
ing 1m barrels a day (b/d) of oilproduction capacity by 2027.
This stands in contrast to a broad decline in oil investment
from the industry as a whole, partly because of pressure to avert
climate change. Ironically, the world’s most carbonemitting com
pany, if you count the pollution from burning its oil, appears to be
the giant doing the best out of the energy transition.
At the same time, Saudi Arabia’s assertiveness on energy mat
ters is growing. European leaders such as Emmanuel Macron in
France and Boris Johnson in Britain have of late set aside revulsion
caused by the murder in 2018 of Jamal Khashoggi, a Saudi journal
ist who wrote for the Washington Post, and have visited Muham
mad bin Salman, the crown prince. Mr Johnson pressed him to
pump more oil to replace Russia’s wardisrupted barrels—but got
nowhere. So far the kingdom has remained staunchly committed
to miserly shortterm oilproduction increases agreed with the
opec+ cartel, which it and Russia in effect control.
Ifanything,Saudi allegiances now lean more East than West. A
few weeks ago Aramco finalised a longmooted investment in a re
fining complex in northern China. It will supply most of the
300,000 b/d of crude the complex needs. The kingdom’s rulers are
in talks with China to price some of the crude supplies in yuan, the
Wall Street Journalhas reported. If this happens, that would dent
the dominance of the dollar in the oil market and jeopardise a deal
dating back to the Nixon era when the Saudis created petrodollars
in exchange for American security guarantees. Bloomberg recent
ly reported that India’s Adani Group, owned by one of the country’s
wealthiest tycoons, may be considering a range of potential part
nerships in Saudi Arabia, including buying a stake in Aramco—a
further sign of closer ties with Asia.
There are good commercial reasons for Saudi Arabia’s eastward
pivot. More than a quarter of its oil exports go to China. Only 10%
go to Europe, and 7% to America. Still, Prince Muhammad’s re
gime is unnecessarily antagonising the West by resisting calls to
increase output, which it could do without compromising its
business. In fact, its resistance seems almost out of spite—and ap
pears to have less to do with commerce and more with the king
dom’s security concerns, including ways to contain Iran and its
proxies, which it feels President Joe Biden’s administration is
ignoring. Underscoring such worries, in the past week Yemen’s
Houthi rebels struck some Aramco facilities with missiles.
As with Aramco, QatarEnergy’s customers are also mostly
Asian. But the emirate, one of the world’s biggest exporters of liq
uefied natural gas (lng), has a more pragmatic approach to the
outside world. It wants strong commercial relations with China—
partly to ensure its lngexports to the Asian giant are not displaced
by Russian gas. But that does not prevent it from maintaining
strong ties with America. It is loth to put geopolitics ahead of
QatarEnergy’s economic interests.
Such commercial pragmatism was apparent during the block
ade of Qatar by a quartet of Gulf states, including Saudi Arabia and
the United Arab Emirates (uae), in 201721, notes Steven Wright of
Hamad Bin Khalifa University in Doha. During the standoff, Qatar
kept natural gas flowing through the Dolphin pipeline to the uae
in order to convince the world it was a reliable supplier. It is appar
ent again in Qatar’s response to Europe’s gas crisis. In the runup
to the war in Ukraine, it too, like Saudi Arabia, declined Western
pleas to send Europe more fossil fuels. Its reasons, though, were
more commercial than mercenary. Most of its lng was simply tied
up in sacrosanct longterm contracts. Now that it has spotted a
new commercial opportunity as Europe seeks to reduce its reli
ance on Russian gas, QatarEnergy is happily talking with Germany
about longterm gas supplies. Dinosaurs in the desert
The biggest contrast between the two energy giants may come
amid the energy transition. Aramco is betting that its lowcost
and, as crude goes, clean oil has a future for years to come. Like
Aramco, QatarEnergy is pouring money into more production—in
its case, a $30bn expansion of its naturalgas export capacity.
But a decade from now, when electric cars will no longer be
burning Aramco’s oil, many of them will still be charged using
electricity generated with QatarEnergy’s gas. After that, both ener
gy giants see the future in producing hydrogen. At that point,
Qatar’s efforts to keep on goodterms with potential customers on
both sides of the geopoliticaldivide will look more commercially
prudent than Saudi huffiness.nSchumpeter
Saudi Aramco’s importance to the West may be eclipsed by its Qatari nemesis