Oil politics bring Saudi Arabia and Russia together

Sunday 30/10/2016
Saudi Oil Minister Khalid al-Falih (3rd R) addressing Gulf ministerial meeting in Riyadh

LONDON - Despite being on opposite ends of the conflict in Syria, Saudi Arabia and Russia have agreed to work together to boost global oil prices.
The agreement came after a meeting in Riyadh between Gulf Cooperation Council (GCC) energy ministers and Russian Energy Min­ister Alexander Novak. In a state­ment after the meeting, Novak said that production limits for Russia and other oil-producing countries were under discussion. He did not provide specifics.
“We see the need to balance the market in the coming months to encourage the return of invest­ments and the reduction of vola­tility,” Novak said, adding that an unprecedented level in coopera­tion had been reached with Saudi Arabia.
Saudi Oil Minister Khalid al- Falih emphasised the need to “re­store balance” as the current cycle of falling crude prices was close to an end.
Whether the “unprecedented level” of cooperation translates into a breakthrough regarding the Syrian war is unclear but Russian political analyst Grigory Kosach said that was highly unlikely due to numerous political differences.
In an interview with the Russian daily Moskovsky Komsomolets, Kosach said that, besides Rus­sia’s supporting Syrian President Bashar Assad, Moscow was reluc­tant to begin dialogue with Syrian groups that Saudi Arabia calls the “moderate opposition”.
Russia’s position has wavered on the Yemen conflict in which a Saudi-backed coalition is battling Houthi rebels supported by Iran. Russia seeks to develop good rela­tions with Iran, which Saudi Arabia regards as a strategic enemy.
Pro-Kremlin media have sup­ported the Houthi-Iran narrative. In April 2015 during a UN Security Council meeting, Russia abstained from voting on a resolution calling for an arms ban on the Houthis, a move that did not endear Mos­cow to the Arab coalition at war in Yemen.
Previously, both oil giants were locked in a costly battle for market share.
Last year, the head of Russia’s biggest oil company, Rosneft, said during an economic conference that Saudi Arabia was “actively dumping, which is an element of the changes in world prices. With­out doubt, the battle for markets is at this stage one of the key factors.”
“We have to make every effort to prevent a decrease in our share of supplies,” Rosneft Chief Executive Officer Igor Sechin said.
The assessment by Sechin came as major oil companies, such as Shell and Total, were cutting long-standing use of Russian crude in favour of Saudi grades.
With the battle for market share taking its toll on both countries’ economies, the question of wheth­er the recent meeting in Riyadh will lead to production cuts re­mains.
“Realistically speaking, a freeze is much more possible than a cut,” said Richard Mallinson, geopoliti­cal analyst at Energy Aspects, an independent research consultan­cy. Russian President Vladimir Pu­tin indicated in early October that Russia might be open to a freeze in production levels if members of the Organisation of the Petro­leum Exporting Countries (OPEC) were to cut production as a part of a deal.
Gulf officials are wary of Russian pledges due to experiences such as in the early 2000s when Moscow promised cuts but never carried them out.
Mallinson said the Kremlin was exploring tax schemes that could influence oil firms and that OPEC’s desire to reach a deal internally with indications of support from the top levels of the Russian gov­ernment was a positive develop­ment.
OPEC is to meet November 30th in Vienna to finalise an agreement on an oil output freeze.