RASHID HUSAIN SYED– Riyadh and Moscow are courting, and, in public. Vladimir Putin may not have been feted in Saudi Arabia like Donald Trump was, yet both share a vested interest in stabilizing the crude oil markets.
Riyadh, for more than one reason, needs all good news on the oil front. And without Russia, this cannot be achieved. Cooperation between Saudi Arabia and Russia has “breathed life back into the Opec” and made the kingdom more optimistic about the outlook for oil than it has been for several years, Saudi Minister of Energy and Industry Khalid Al-Falih underlined in Moscow.
On the other hand, with the Russian economy under pressure, Moscow too cannot afford lower crude revenues at this juncture. Timing is simply too important. President Vladimir Putin’s popularity is waning while the next presidential election–scheduled to be held in March-April 2018, is critically getting close.
And thus when King Salman undertook a visit to Moscow, a marriage of convenience was solemnized–brushing aside numerous political differences on many fronts.
During King Salman’s visit, the two countries announced launching a joint energy investment fund worth $1 billion, which could include investments in natural gas projects and petrochemical plants. Among the deal signed, Saudi state oil giant Aramco–the world’s biggest energy company, signed a deal with Russian Direct Investment Fund (RDIF) and gas processing and petrochemicals company Sibur, on joint projects in the area of oil refining.
Amin Al-Nasser, Aramco’s chief executive said: “This marks a new milestone in business relations and partnerships with our counterparts in Russia.”
Aramco also signed a memorandum of cooperation with Russian state-owned oil company Gazprom Neft, to collaborate on drilling technologies and research and development areas, as well as employee exchange programs.
Sometime during the first Obama term, this correspondent had the opportunity to ask the then US energy secretary Prof. Steven Chu: is the crude glue binding Riyadh and Washington finally peeling off? And the academician in Secretary Chu was blunt in admitting, yes. ‘We need to find other glues now.”
It seems with the shale revolution–the emerging alternative energy scenario, as even admitted by the IEA now, the crude glue binding Washington and Riyadh has almost peeled off, and instead, has begun binding Moscow and Riyadh together. For, at the moment, both appear on the same boat – reliant largely on their crude revenues. This is Realpolitik.
Over the last few years, by tapping into its vast shale resources, although the U.S did emerge as the new swing crude producer, yet, it seems to have lost the plot in more than one way. In this new, emerging, world crude order, Moscow, and, not Washington, is the kingmaker.
Russia has been using its crude weight to further its geopolitical objectives for some time now. It got evident when Moscow literally masterminded the November 2016 crude output cut deal. Going into the Algiers meeting in September, the prevailing sentiment among the analysts was: with the growing animosity between Riyadh and Tehran, there was no prospect of any Opec output cut deal.
However, it did happen, and as Reuters reported, it was owed to one person – Vladimir Putin. As per Reuters, Putin’s role as intermediary between Riyadh and Tehran was pivotal in the deal – a “testament to the rising influence of Russia in the Middle East.” Ever since, the Russian influence on Opec and the global crude horizon has been rising.
Earlier this month, Moscow ally Venezuela announced that major crude producers were discussing the inclusion of some 12 oil-producing additional countries from South America and Africa into the output cut deal. Without naming the countries, Venezuela’s Oil Minister Eulogio del Pino said they have been invited to join the deal.
On the other hand, Russia is also boosting crude oil ties with China, the world’s largest crude importer. Russia is already the largest crude oil supplier to China. Now Russia’s oil giant, Rosneft – whose chief executive Igor Sechin is a close ally of Vladimir Putin – is reportedly aiming to further increase crude oil deliveries to China. And to consolidate the association, the company has also negotiated with Qatar and Glencore to sell their shares in Rosneft to China’s CEFC China Energy Company Ltd.
In another highly significant geopolitical move, bringing Russia, Iran, Turkey and China still closer, the Russian state oil company JSC Zarubezhneft has announced entering a triangular oil development agreement, worth $7 billion, with the Turkish energy group Unit International and the Iranian Ghadir Investment Company. The JV would undertake drilling ventures in Iran.
Moves also seem underway to weaken the hold of the U.S. dollar on oil trade. Beijing has plans to start crude oil futures contract, priced in yuan and convertible into gold. The step might lead to the emergence of a new Asia-based crude oil benchmark to compete with Brent or West Texas Intermediate futures. In the meantime, Moscow ally Venezuela has also announced ditching dollar for oil payments.
Anticipation is also growing that yuan and other currencies may compete with dollar for petro-trade. And that cannot happen until Saudi Arabia agrees to it. There are now reports that China will “compel” Saudi Arabia to trade oil in yuan, Carl Weinberg, chief economist and managing director at High Frequency Economics told CNBC last week. Saudi Arabia has “to pay attention to this because even as much as one or two years from now, Chinese demand will dwarf U.S. demand,” Weinberg said. And that would then mean the end of the petrodollar era.
Veteran investor Jim Rogers told RT last month that a number of countries including Russia, Iran, Pakistan, Vietnam, China and many other Asian countries are interested in switching to a currency other than the dollar for oil payments. They are becoming worried about trading in dollars as there is a growing feeling in these countries that the US could use its dollar leverage to force them to meet its undue political demands.
“China, Russia, and other countries understand this, and they are trying to move world trade and finance away from the dollar,” emphasized Rogers.
Things appear in real flux and Moscow is in the lead–as far as the energy world is concerned. And the growing Saudi-Russia amity on crude front may open new vistas for the energy world.
The author is Toronto-based senior media professional who regularly contributes to the Globe and Mail, Dawn, BBC and Saudi Gazette.