The Middle East Can Cover Europe’s Energy Needs, but at What Price?

‘The only viable solution is for the Gulf states to increase production, which is unlikely, expert says

Russia on Wednesday halted its supply of natural gas to Bulgaria and Poland after the latter nations refused its demand that Europeans pay in rubles.

According to Gazprom, the majority state-owned Russian gas giant, some European companies have already found ways to continue to buy gas from Russia while both satisfying its payment demands and avoiding breaching the sanctions imposed on the country following its invasion of Ukraine.

Dr. Dimitrios-Vasileios Kokkinos, chairman of the UAE-based DVK Consultants, told The Media Line that some companies have indeed found ways to do just that.

“They will mask it by paying euros to Gazprombank which the bank will change into rubles,” he said.

Gazprombank is a subsidiary of Gazprom.

Vassilis Kopsacheilis, a political adviser specializing in geopolitical risk, pointed out in an interview with The Media Line that several European companies have contracts with Gazprom, and they are willing to pay in rubles, as Russia demands.

Moreover, four European gas buyers have already paid for supplies in rubles, according to Bloomberg News, which cites a person close to Gazprom.

Kopsacheilis added, however, that many European countries are hesitant to comply with Moscow’s demands regarding payment for natural gas and oil.

For this reason, many European countries, gas and oil buyers, and organizations have turned their attention to the Middle East as a possible alternative.

Kopsacheilis noted that there are some countries in the region that could provide a limited quantity of energy supplies to Europe, and others could do so on a larger scale, but there are still some issues to be solved for that to happen.

“For limited quantities, Israel and Egypt, even Iraq − the Kurdish region of Iraq − could be alternative suppliers. For bigger quantities, Algeria, Qatar, and to a lesser extent Saudi Arabia. Iran could be a good alternative as well,” he said.

Kokkinos said that North Africa will increase gas exports to Europe. However, that will fill only a small part of the gap.

Concerning Saudi Arabia and the other Gulf countries, Kokkinos explained that they have long-term contracts to supply mainly China. It is difficult for them to reduce exports to Asia and divert them to Europe due to the increasing importance of China in the Middle East.

“This [supply to China] is important for them [the Gulf countries] because now that the US has withdrawn from the Middle East only China can protect them from Iran,” he said.

Therefore, he added, “Gas to Europe can be increased only marginally.”

Kopsacheilis added that Asia pays relatively high prices for liquefied natural gas.

“If shipments were going to be redirected from Asia to Europe, that would mean higher prices for European buyers, which means more costly gas for European consumers compared to current prices from Russia,” he noted.

Kopsacheilis said Iran could be a good alternative as well. However, he explained that the Iranian nuclear deal first must be reinstated for the sanctions to be lifted, and only then, Iran could export its gas and potentially supply Europe.

Kokkinos noted that Qatar shares with Iran the biggest gas field in the world, South Pars, which they always pump together because otherwise, they would have technical problems. However, he said that theoretically, the Iranian side cannot export the gas because of sanctions.

Concerning the Eastern Mediterranean countries, he added that if new gas sources are found in the region, it could be considered a more suitable alternative. However, he added that it would take several years to make that happen.

Kokkinos concluded that Europe will most likely fall short of its gas needs because of the Russian invasion of Ukraine and the sanctions imposed by the EU and the US, and the Russian conditions for supplying energy in response.

The only viable solution is for Saudi Arabia and the Gulf states to increase production to the benefit of Europe, “which is unlikely,” he said.