OPEC giants hike oil prices as US sanctions squeeze Russian supply

The latest round of US sanctions on Russian oil is fueling a surge in prices, allowing the largest Middle Eastern oil producers to implement their steepest price hikes in years.

These price increases, according to Bloomberg's data, may provide much-needed financial relief to major exporters such as Saudi Arabia and Iraq, as well as support broader economic stability in the region, Caliber.Az reports.

Iraq, the second-largest producer within the Organization of the Petroleum Exporting Countries (OPEC), has raised the selling price of its flagship crude to Asia to its highest level since September 2022. Saudi Arabia also announced a significant price increase last week, while crude prices in the United Arab Emirates (UAE) have climbed to similar highs.

With Russia facing an imminent oil tanker shortage and Iran under the threat of renewed sanctions, global buyers are scrambling to secure alternative sources of comparable Middle Eastern crude. This shift in demand is pushing up oil prices across the region.

Data from PVM Oil Associates shows that Dubai swaps, the benchmark for Gulf crude, have surged, with the discount to Brent crude futures narrowing to its smallest gap since June. This reflects the growing appetite for Middle Eastern oil as global refiners adjust their sourcing strategies.

While oil prices remain below the level Saudi Arabia requires to fully fund its extensive spending plans, any increase provides relief to the kingdom. Saudi Arabia has been among the largest bond issuers in emerging markets over the past year, and higher oil revenue could ease financial pressures.

For Iraq, maximizing revenue is crucial to support its economy. The country has responded by aggressively increasing crude prices in a bid to capitalize on rising demand and extract more value from its oil exports.

The recent surge in oil prices has also been influenced by stronger refining margins in Asia. Several refineries in the region have scaled back production, creating additional upward pressure on crude prices. This tightening of supply is playing into the large price increases set by Middle Eastern producers.

Middle Eastern oil producers typically set prices for long-term contracts on a monthly basis, with Saudi Arabia leading the region’s pricing strategy. Iraq has raised the price of its Basrah Medium crude for Asian buyers by $2.60 per barrel, bringing it to a premium of $2.65 over the regional benchmark for March sales. Basrah Heavy crude has seen a similar increase, with both grades now at their highest levels since September 2022.

Other key Gulf producers have also significantly raised prices. Abu Dhabi and Oman, whose crude prices are determined through exchange trading, have seen steep month-on-month increases. The price of Abu Dhabi’s flagship Murban crude has jumped to $80.22 per barrel for March deliveries, up from $73.28 in February. Omani crude has also experienced a similar surge of more than $7 per barrel.

By Tamilla Hasanova