How the beneficiaries of the war keep minting money.
by Sanjay Kapoor
In the famous Hollywood movie, Schindler’s List, made in the backdrop of the Second World War Germany, the protagonist, Oskar Schindler, a struggling businessman in the best of times, suddenly finds himself in riches and asks himself a question: “Why am I making money now and never in the past.” The penny drops for him when he realizes that he was making profit due to war.
If the reports from the ground are any indication then it could be an unending war where Russia may find it difficult to defeat Ukraine, which is finding funds and assistance from the West. More so as there is little interest in the stakeholders to end the war as everyone is making big money except the commoners everywhere.
The Ukraine war is reordering world economy in a manner not even conceived at the time when it began six months ago on February 24, 2022. What is easy to say is that it has made oil, gas and food grain exporters unimaginably richer and most of the importers of all the above commodities poorer. What it means is that the countries of West Asia like Saudi Arabia and UAE are enjoying the windfall profits. Russia is also known to be making a billion dollar a day since war began and that does not include the proceeds from food grain, fertilizers etc. In April/May, India came close to making $ 5 billion from export of food grains, but later realized that its harvest was inadequate to meet its export commitments and hastily stopped it. Despite that it exported about 3.7 lakh tons of food grain.
Coming to the oil and gas sector, Saudi Arabia, for instance, world’s second biggest producer of oil has seen a serious jump in its revenues. The first quarter showed that its GDP had grown more than 2011. According to Paul Rivlin of Moshe Dayan Centre of Middle East and Africa, “Saudi’s revenues from sales of crude oil have increased dramatically. In the first quarter of 2021 they came to $39 billion, by the first quarter of 2022, they had risen 92 percent and reached $75 billion. At this rate they will reach $300 billion, compared with $119 billion in 2020 and $202 billion in 2021. In the UAE, where oil production declined, revenues rose from about $33 billion in 2020 to $46 billion in 2021.”
The windfall profits that Middle East is earning is shaping their foreign policy in a manner that the United States and Europe had least expected. US President Joe Biden’s visit to Riyadh and the manner in which the young Saudi prince, Muhammad Bin Salman, refused to succumb to pressures of Washington to substantially increase oil production and also to abandon ties with Russia and China firmly indicated how the countries of the gulf perceived the United States. It’s far cry from the time when US President Franklin D Roosevelt met Saudi King, Abdul Aziz at USS Quincy at Great Bitter Lake, Egypt, on February 14, 1945. As a concession to US President’s visit to Riyadh, Saudis promised a token bump of 100,000 barrels per day. This amounts to nothing. MBS and Saudi’s close ally MBZ of UAE haven’t been as critical of Russian invasion as US would have expected them to be. The Middle East believes that US is a declining power and Russia and China are growing rapidly to fill up the vacuum. Besides, China and India, two Asian powers, rely on the petroleum supplies for 50 percent of their needs from the gulf, largely from the Saudis, Iraq and UAE. China also buys crude oil from the sanctioned Iran. A lot will begin to change if the US and Europe sign the JCPOA deal that will immediately allow a million barrel of additional oil in the market. More about it later.
When the Ukrainian crisis hit the world, it introduced many imponderables from how the sanctioned Russian oil and gas be replaced and what the world would do to augment food supplies once they are disrupted by the war between Russia and Ukraine. Bulk of the food supplies to many Arab countries like Egypt, Morocco, and Yemen came from Black sea. They were all on the threshold of calamitous food crisis till Turkey brokered a deal with Ukraine and Russia. Now ships are going through the Bosphorous strait to access the silos of wheat, corn and fertilizer belonging to these warring countries. One of the reasons why this deal was brokered is because of the excessive lobbying by large cartels that have bought lakhs of hectares of farmland to grow food grain in Ukraine. In fact a majority of the fertile farmland of the beleaguered Ukraine is now under the control of US based multinational agriculture companies. The worry as stated above is that once the deal is done, there is no one really worrying about the war, which may just carry on helping the weapon manufacturers, oil, gas and food grain exporters.
Another category that has really done well is the Indian refiners like Ambanis who own the Jamnagar refinery and Rosneft that controls the Nayyara refinery. Both these refineries are cleaning up crude Urals that they receive from Russia, which is heavier and needs other crude to stabilize. Employees in these companies think they have never made so much money as they are making now – pretty similar to how Oskar Schindler felt.
The only people that worry, besides the hungry people of Africa and Asia, are the Europeans that fear that there won’t be any gas to warm their apartments come winter.
Sanjay Kapoor is a senior analyst and the editor of the Delhi-based Hardnews magazine. He is also the general secretary of the Editors Guild of India. This article is based on the lecture – Ukraine, Oil and West Asia – that he gave at the West Asia centre of JNU, New Delhi.
