The West wants Russia and Saudi Arabia to fight over Houthi rebels

Navigation problems in the Red Sea due to Houthi attacks on container ships may cause friction in one of the key alliances in the oil market — between Russia and Saudi Arabia, Reuters said.

Since the beginning of January, the number of tankers in the Red Sea has dropped significantly, whereas freight rates have risen by a third since mid-December. Insurance premiums have also increased to about one percent of the insured value of cargo, industry analysts say.

Many companies are forced to change their routes, and Russian companies are no exception. Researchers from S&P Global Ratings said that in the first half of 2023, about 75 percent of Russian oil traffic through the Suez Canal was headed south.

Most of the supplies were intended for Indian and Chinese companies. A detour around the Cape of Good Hope in Africa adds almost 14 days to travel time.

This obviously pushes the cost for the transportation of Russian oil higher up. If insurance premiums continue rising as well, the cost of shipping through the Red Sea may reach the cost of the route around Africa. Russian oil may thus become more expensive for India and China, let alone possible supply delays.

Saudi Arabia may take advantage of the situation as its tankers do not necessarily have to pass through the Suez Canal. Increased sales in Asia would strengthen the financial stability of the country, which is actively participating in the OPEC+ deal aimed at reducing oil production.

Over the past six months, the share of Russian exports to India and China has fallen from 20 to 18 percent, while Saudi volumes have increased from 15 to 16 percent. In January, Saudi Arabia also cut oil prices in Asia to 2021 levels.

Possible disagreements between Russia and Saudi Arabia could undermine unity within OPEC+. This already happened in 2020, when Russia rejected a proposal to cut oil production and thus started a price war with Saudi Arabia that led to a sharp drop in oil prices to $20 per barrel.

A crisis in relations between Russia and Saudi Arabia is a dream for Washington, London, Berlin, and Paris. It is worth noting that Reuters is only suggesting such a development. Since 2020, Russia and Saudi Arabia have repeatedly demonstrated their ability to find mutually acceptable solutions to complex problems. Therefore, one should not rush to any conclusions.


Author`s name
Anton Kulikov