In June last year, the Government proudly announced that the UK imported no coal, oil, or gas from Russia for the first time on record. It had scrambled to find alternative sources of fossil fuels, primarily in the form of gas from the UK and Norway’s continental shelf, with refined oil from Saudi Arabia, Kuwait, the Netherlands, and Belgium.
Though Britain was never nearly as reliant on the Kremlin’s supplies as Europe, it was a significant milestone – proof that serious progress had been made in reducing our exposure to tyrannical petro-states that turn to economic warfare when the international community stands up for democracy, freedom and sovereignty.
Since then, however, gas prices have tumbled.
The Treasury felt suitably reassured to end its monthly energy support, and bills continue to fall – albeit more slowly than we’d all hoped – helping in the almighty fight to tame inflation. Elsewhere, Ofgem has stated that the market has stabilised and suppliers are in a healthier financial position.
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But as the worst energy crisis for decades seemingly recedes, another one is about to erupt.
A dangerous Saudi-Russian alliance is manipulating the global oil market with potentially epic new consequences for Western living standards.
With US gasoline prices hitting an 11-month high, Deutsche Bank strategist Jim Reid points out that “investors are already betting that interest rates will remain higher for longer into 2024”, prolonging a cost of living crisis that has pushed more than 70 million into poverty, the United Nations estimates.
In Britain, it is no exaggeration to say that Crown Prince Mohammed bin Salman could obliterate Andrew Bailey’s hopes of reining in inflation, at the same time as intensifying the mortgage crunch currently reverberating through millions of households.
In spite of a warning from Joe Biden last year to Saudi Arabia that production cuts would be interpreted as a grave personal slight after he’d flown out to Riyadh to appeal directly to the crown prince, the Kingdom has continued to do exactly that.
The squeeze on world supplies has put a rocket under oil prices. With the cost of crude surging 30pc since June, oil is trading at its highest level since November 2022, and on a march towards $100 (£81) a barrel for the first time in nearly a year.
Global benchmark Brent edged closer to $95 a barrel on Tuesday, after advancing for a fourth straight day. US-produced West Texas Intermediate jumped 1.1pc in a single day to take it near to the $93 mark.
Mike Wirth, boss of American oil titan Chevron, sees prices getting “close” to the $100-a-barrel level, while Bjarne Schieldrop, chief commodity analyst at SEB thinks prices are already so close to that point that “only noise is needed to bring it above”. Goldman Sachs has warned that prices could hit $107 next year.
The energy-for-security alliance that underpins US-Saudi Arabian relations has survived many tests: the 1973 oil embargo; two Gulf wars; possible Saudi links to the 9/11 terrorism attacks; and more recently, the brutal murder of dissident journalist Jamal Khashoggi.
But the Kingdom’s decision to collude with Moscow last year to put a floor under sagging oil prices could stretch a dirty bombs-for-oil pact between Washington and Riyadh that has endured for 80 years beyond breaking point.
Saudi energy minister Prince Abdulaziz bin Salman claims its cuts are no different to the efforts of central banks at taming inflation – Gavin John/Bloomberg
“Saudi Arabia has set Opec on a collision course with the free world,” analyst Bill Farren-Price remarked at the time.
Since then, both sides have been engaged in a dash to protect their own interests.
The US and Western allies have urged the wider Opec+ cartel to raise output to secure lower energy costs and boost the global economy. Biden has also emphasized the need to lower prices to prevent Vladimir Putin from generating further revenue to bankroll his devastating war in Ukraine.
Opec producers have come up with all manner of excuses for their actions. They claim they are acting to maintain market stability, while Saudi Arabia’s energy minister has repeatedly made comparisons with Western monetary policy.
Having complained that a decade of abundant money printing has dampened oil prices, Prince Abdulaziz bin Salman claims its cuts are no different to the efforts of central banks at taming inflation. He has also rejected suggestions the move is about “jacking up prices”, though no one believes that.
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Putin’s war chest needs continuous replenishing while bin Salman can’t afford for prices to slump if a dream of reshaping his kingdom through a succession of grandiose construction projects is to ever be fulfilled. It’s what the European Council on Foreign Relations think tank calls a new era of “hyper-nationalism” that is sweeping across the Kingdom.
With the cartel estimating a deficit of 3 million barrels per day in the final quarter of this year, Kyle Rodda, senior financial market analyst at capital.com, points out that would be the largest shortfall since 2007.
The knock-on effects threaten to cascade through the global economy.
Ten pence has been added to the cost of a litre of petrol since June, but it is also likely to push up the cost of food and the prices of various goods and services as manufacturers pass on rising energy bills again.
Meanwhile, the Bank of England may be forced to prolong the rate hike cycle, meaning fresh mortgage misery for millions.
With Schieldrop warning that Saudi Arabia and Russia “are in solid control of the oil market”, we are at the mercy of a powerful new axis that threatens to plunge Britain into a destructive stagflationary cycle for the first time since the 1970s.
It’s the comeback that nobody wants to see.
