Saudi King Seeks Oil-Pact Extension on ‘Epochal’ Russia Visit
October 5, 2017 by admin
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Saudi King Salman bin Abdulaziz is making an historic first visit to Russia by a monarch of the Gulf kingdom as he and President Vladimir Putin seek an understanding on whether to extend an agreement curbing oil supplies.
King Salman is due to meet with Putin on Thursday after he arrived for the four-day official visit late Wednesday. His journey to Moscow, ahead of planned talks with U.S. President Donald Trump in Washington early next year, underscores a shift in strategic direction by Saudi Arabia as Russian influence in the Middle East expands following Putin’s military intervention in Syria.
King Salman bin Abdulaziz at Moscow’s Vnukovo Airport, Oct. 4.
“Is there really anything in the world that’s absolutely permanent?” Putin told an energy forum in Moscow on Wednesday, in response to a question about whether Saudi Arabia will always align with the U.S. in geopolitical issues. “It seems to me, on the contrary, that everything’s changing.”
The Saudi courtship of Russia reflects a convergence of interests between the world’s two largest oil exporters as the output pact between the Organization of Petroleum Exporting Countries and non-OPEC producers has spurred a recovery in crude prices. It’s also a recognition by Riyadh of the changing political balance in the Middle East after Putin successfully countered indecisive U.S. efforts to topple Syrian leader Bashar al-Assad.
‘Transcends Energy’
“We are sure that this truly epochal event in our relations will bring our cooperation to a totally new level,” Russian Foreign Minister Sergei Lavrov said in an interview with Saudi-owned newspaper Sharq al-Awsat published on the Foreign Ministry’s website on Wednesday.
Saudi Arabia will secure Russian backing to extend the oil pact “but the Kremlin will insist that the deal include some form of tapering,” Eurasia Group analysts including Ayham Kamel, Middle East and North Africa practice head, said in an emailed note. The visit “will lay the foundation for strategic cooperation that transcends energy issues, though the Saudis have no intention of abandoning their deep partnership with the U.S.”
Putin said Wednesday that Russia may agree to extend the oil-supply agreement with OPEC to the end of 2018, though he’ll wait to make a decision until nearer the expiry of the existing pact in March. The arrangement that took effect in January benefits oil consumers as well as producers because it guarantees a “stable market,” he said.
“This visit shows the level of trust that we’ve reached recently,” Saudi Energy Minister Khalid Al-Falih told a Russia-Saudi investment forum in Moscow on Thursday. The oil-supply deal has achieved its goal by stabilizing the market, he said.
King Salman is visiting as Saudi Arabia looks to deepen energy ties with Russia by striking major deals to acquire oil and gas assets. Russian Energy Minister Alexander Novak said Saudi companies are in talks on possible participation in an Arctic LNG project led by Novatek PJSC, and Saudi Arabia is to invest $150 million into Eurasia Drilling Co., Russia’s largest oil drilling contractor, the Financial Times reported.
The head of Russia’s state-run oil giant Rosneft, Igor Sechin, said last month that there’ll be pressure for OPEC and its partners to extend production cuts if Saudi Arabia proceeds with an initial public offering of a stake in state-owned Saudi Arabian Oil Co. About 5 percent of Saudi Aramco, as it’s known, will be offered in an IPO next year that could value the company at more than $1 trillion, depending on the state of the oil market.
‘Solid Commitment’
“The Saudis will be looking for a solid commitment from President Putin to stick with the production deal with OPEC,” said Chris Weafer, a partner at Macro Advisory in Moscow. “That is Riyadh’s best hope for keeping the price of Brent in the mid $50’s, if not getting it above $60 in time to support the kingdom’s ambitious valuation target for Aramco.”
Deals in energy and road construction will be announced during the Saudi visit, Russian Direct Investment Fund Chief Executive Officer Kirill Dmitriev told the investment forum on Thursday. The RDIF and Saudi Aramco intend to announce a $1 billion fund to invest in oil-services projects in Russia, while the fund and Saudi partners plan more than $2 billion of investments, he said Wednesday.
Aramco is in talks with Sibur Holding PJSC, Russia’s largest petrochemical producer, about forming a joint venture to make synthetic rubber in Saudi Arabia, two people with knowledge of the matter said last month.
Arms Talks
Russia’s prepared proposals to sell $3 billion of arms that may include the S-400 missile-defense system for discussion during the king’s visit, Kommersant daily reported Thursday.
Saudi pledges of large investments in Russia “have disappointed in the past,” and just $1 billion has materialized out of $10 billion promised to the RDIF in 2015, according to Eurasia Group.
The unlikely partnership between Moscow and Riyadh marks a sharp turn-around from Soviet times. Saudi Arabia cut off relations with the atheist Communist state in 1938, only restoring them after the Soviet collapse. Together with the CIA, the Saudis also armed Mujahedeen fighters who ended the Soviet Red Army’s 10-year occupation of Afghanistan.
Still, tensions remain over Syria, where Saudi Arabia is pressing Russia to rein in Iran, which the kingdom regards as its chief rival in the region, following the defeat of rebels backed by Riyadh in the war against Assad.
King Salman “won’t demand the impossible” at his meeting with Putin, said Irina Suponina, a Middle East expert at the Russian Institute of Strategic Studies, which advises the Kremlin. “Saudi Arabia is aiming for real cooperation with Russia and understands that you can’t split Russia from Iran.”
— With assistance by Donna Abu-Nasr, Elena Mazneva, Ilya Arkhipov, Wael Mahdi, and Samuel Dodge
