ussia-Saudi Arabia relations has its own complicated aspects. At the first glimpse, due to geographical distance, the Moscow-Riyadh ties do not seem to be complicated; however, the fact that they are sensitive to one another could not be disregarded.
Either side wields tools to influence the other side. Moreover, they are considered to be rivals in a variety of sectors. Saudi King Salman"s visit to Moscow on 4 October 2017 - which was the first by a Saudi monarch in the history of ties between the two countries - brought a variety of issues to the fore. One of important issues discussed during this visit was oil price and the future of energy markets.
Energy; Key Issue
Since Russia and Saudi Arabia are both key producers and exporters of oil in the world, the issue of energy was put on the agenda of meetings during the Saudi ruler"s state visit.
The discussions between Tehran and Moscow concentrated on two main issues:
First was the issue of cooperation between the two countries in energy sector; Russia is willing to invest in Saudi"s oil and gas industry while Saudis enjoy great potential to invest in Russia"s energy sector. To that effect, the Saudis announced that they would invest in more than 25 projects in Russia, including oil and gas projects.
Second was the issue of extension of a deal between OPEC and non-OPEC producers to cut oil output in a bid to curb the global supply glut which has slashed prices.
Kirill Dmitriev, CEO of the Russian Direct Investment Fund, said Russia and Saudi Arabia had each earned $40 billion from the 2016 OPEC and non-OPEC deal.
International efforts to stabilize oil prices "have been fruitful, bringing oil prices to above $55 per barrel," Dmitriev told Rossiya 24 news channel.
"We believe that without this deal, prices would be below $35 per barrel now," he added.
Dmitriev praised the 2016 agreement, saying it "generated trust between nations and showed that by working together we can achieve meaningful, serious results."
Meantime, Saudi Arabian Energy Minister Khalid Al-Falih, who was in Moscow together with other officials accompanying King Salman on his landmark Russian visit, also said that the deal between OPEC and non-OPEC countries had helped to stabilize oil prices.
The minister also said that cooperation between Riyadh and Moscow had "breathed back life into OPEC which found itself, quite frankly, unable to swing its production as supply was persistently high in 2014 and global inventories were steadily rising ahead of demand."
Such remarks were indicative of inclination by Russia and Saudi Arabia for the extension of the OPEC and non-OPEC deal. On this basis, expansion of Russia-Saudi relations could influence energy markets in the future. Undoubtedly if Moscow and Riyadh, both rich in energy, cooperate closely they would be instrumental in determining prices.
This issue could be of great value for Russia which has been under sanctions and economic pressure in recent years.
Change and Stability
For Russia, Saudi Arabia"s oil policy, particularly with regard to prices has seen significant changes in recent years. In the past, the Russians imagined that Saudi policy was a major cause of decline in oil prices. More frankly, the Russians maintained that lowered oil prices were a Saudi plot. Some in Russia believed that Saudi Arabia and the US were driving prices down in a bid to pressure Russia into refraining from meddling with the Middle East affairs, particularly in Syria.
Linking oil price decline to Saudi-US anti-Russia alliance has a long history. In 1985, Saudi and the US had undertaken similar measures to accelerate the collapse of the former Union of Soviet Socialist Republics. In early 1985, unilateral production enhancement by Saudi Arabia led to sharp price decline. That is to say, Saudi Arabia increased its production in 1985 from 3.6 mb/d to around 5.2 mb/d in 1986. Later on, it came out that market share policy, US -Saudi collusion, as well as CIA plot were just tricks aimed at putting Iran under pressure to end imposed war, accelerating FSU collapse as well as exerting further pressure on Libya.
Over recent years, the Saudis imagined that Russia would stop supporting Syria"s President Bashar Assad in order to have funds for dealing with the crisis in Ukraine in case it faces financial restrictions. A potential halt in Russia"s support for the Damascus government would have changed the game in favor of pro-Saudi forces fighting in Syria. Furthermore, oil prices would have been a bargaining chip for Saudi Arabia.
Therefore, continued low oil prices would have prevented Russia from raising output, let alone affecting Moscow"s policy vis-à-vis Iran and Syria. That was indicative of some sort of energy war between Russia and Saudi Arabia, which did not let the two countries come closer together. That is why the Russians viewed oil price decline as a Saudi conspiracy.
In any case, Russia and Saudi Arabia were considered as energy rivals, particularly in oil sales. While Moscow favored higher oil prices, the Saudis were a major factor in pushing the prices down.
However, in recent years, two factors have brought about a U-turn in the Saudi oil policy:
The first factor was losses incurred by Saudi Arabia due to low oil prices. During the first days and months of oil price crash, Saudi Arabia did not express any worry and even said it was ready to face much lower prices. However, after it invaded Yemen it faced a decline in financial resources. Saudi Arabia"s 2017 budget bill was adopted with a big deficit running at around 198 billion Saudi riyals. The pressure exerted on Saudi Arabia due to low oil prices convinced this country to reconsider its oil policy.
The second factor was the US oil policy which saw a big change after President Donald Trump took office last January. In the past, oil prices were rarely under the impact of events in the developed markets of North America and West Europe. But under the present circumstances where the OPEC and non-OPEC deal is in effect, any production hike by a country would pose a challenge to this scheme. Trump"s oil policy on production hike is not welcomed by the Saudis who seek rapprochement with Russia in a bid to compensate for the US breach of promise.
Russia and Saudi Arabia are currently willing to cooperate in the energy sector; however, such willingness is out of coercion, but for interests. Under normal conditions, they are rivals in terms of oil production and exports.
Any increase in oil production and export by Russia could largely destabilize the Saudi standing in global energy markets. Moreover, the two countries have severe contradictory views about political, regional and international issues like the Syria crisis.
Therefore, Russia-Saudi energy cooperation is unlikely to be sustained and long-term and it will be vulnerable to any return of prices on their normal track. Although Saudi Arabia"s energy policy on oil prices and cooperation with Russia has changed such a shift in policy would not live long and will most probably remain limited to the OPEC and non-OPEC oil output cut deal.
By Shuaib Bahman
Courtesy of Iran Petroleum