Why Saudi Arabia is buying Russian oil

If ever there were a situation that would seem to parallel the old saying that something is like sending "coal to Newcastle" — meaning doing something that is pointless — it would be sending oil to Saudi Arabia.  Yet there is a reason why the number-two oil-producer in the world is importing significant and increasing amounts of oil from Russia.  And it illustrates the pointlessness and counterproductivity of the sanctions on Russian oil sales spearheaded by the Biden administration that have helped send the price of crude oil soaring.

Oil is sold on a global market.  Restricting sales via refusing to buy oil from one producer like Russia does not mean that the Russian oil stays in the ground or accumulates in storage facilities.  It just means that the Russian oil will find other buyers who will pay a little less than Russia would have gotten without the sanctions.

But the discount comes off the higher prices set on the world market as the countries imposing sanctions have to turn elsewhere to bid for oil supplies.  They have to pay more, and the world market price for oil goes up.  Joe Biden likes to call out the "Putin Price hike," and this is what he means.

Meanwhile, Saudi Arabia is buying the Russian oil at a discount from the higher world prices caused by imposing the sanctions (and the Biden administration's limits on oil exploration, production, and transport in the United States, but that's a separate issue).  Saudi Arabia uses the Russian oil as fuel for electricity generation.

And here is the beauty of the situation if you are Saudi Arabia (which Biden promised to make a "pariah state" until he went there to beg for increased output).  Saudi Arabia is able to sell the oil it used to use for electricity generation on the world oil market and reap much higher prices than it pays to Russia, and much higher prices than it used to receive before the sanctions were imposed.

Russia wins by evading the sanctions, and by overall receiving much higher prices for its oil (and gas) exports than it did before the sanctions.  Saudi Arabia wins by reaping higher overall prices, and by importing cheap oil and selling the oil formerly used for electricity at higher prices than the imports cost it.

So who loses?

That would be you and I, and the oil consumers around the word, especially in the countries that are imposing sanctions on Russia.

The sanctions are, in fact, counterproductive and idiotic — as is true of many of the Biden administration's foreign policy initiatives.

This video from India's First Post explains the situation well in four minutes.

Photo credit: YouTube screen grab.

Hat tip: James Nollet.

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