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Saudi Arabia, Russia Choose Cooperation Over Conflict in Oil Price Battle

Saudi Arabia, Russia Choose Cooperation Over Conflict in Oil Price Battle

Riyadh, Moscow to triple oil project partnerships

The oil price war between Riyadh and Moscow, which unofficially ended in April, is now clearly over. Saudi Arabia and Russia are on track to triple their oil partnership projects by augmenting, according to Arab News, 72 further group ventures over four years (2020-2023).

The standoff between the two oil giants commenced in January after Russia refused to go along with an OPEC+ agreement to continue to lower oil production. Saudi Arabia countered this move by declaring that it would expand oil output and lower the price of oil, leading to oil dropping in March to its lowest oil price in nearly 30 years.

These tensions came on the backdrop of the coronavirus, which lowered demand for transportation was low due to lockdowns.

“The Russia-Saudi oil price war in the spring appears to have taken a toll on both countries to one degree or another; it was always a game of chicken though I tended to think [Russian President Vladimir] Putin was the more experienced player between the two, and was more cool-headed and calculating,” Anna Borshchevskaya, a senior fellow at The Washington Institute, told The Media Line.

Borshchevskaya says that the decision to triple joint oil ventures comes on the backdrop of Russian Deputy Finance Minister Vladimir Kolychev reportedly saying in early December that the demand for oil may have already reached its pinnacle and that future financial gains may be less than expected.

“[This] suggests concerns about oil revenues, which largely drive the Russian economy, and that’s not something you usually hear from a Russian official,” she said.

The Washington Institute’s senior fellow also suggests that spikes in coronavirus cases may have spurred the two countries to work more collaboratively.

“The second wave of COVID may also be related to these developments. … Both Putin and the Saudis may have concluded for a whole host of reasons that it is better for them to cooperate,” Borshchevskaya said.

Borshchevskaya says that Moscow has battled the Western world for sway over the House of Saud.

“Historically, Russia always tried to pull Saudi Arabia out of the Western sphere of influence – the Kremlin always understood the country’s importance,” she said, citing how the USSR was the first state to formally accept Ibn Saud as head of the Saudi “proto-state.”

“Since Saudi Arabia’s formal establishment in 1932, Moscow and Riyadh have been at odds in almost every Middle Eastern war or dispute besides the Arab-Israeli conflict; but because Moscow has always understood Saudi Arabia’s importance in the region, it periodically reached out to the country in order to weaken, however slightly, Riyadh’s alliance with the West,” Borshchevskaya added.

As the two largest producers of oil, and the top exporters to China, both Riyadh and Moscow are also traditionally at odds in oil investment.

Nassir Shirkhani, a former Middle East correspondent for Upstream, an international oil and gas newsweekly and website, argues that this keeps the scale of their newly announced oil projects in perspective

“Why would they invest in each other’s energy sectors when they are also rivals, particularly to the Chinese export market,” he told The Media Line, noting that in October 2019, Saudi Aramco, the kingdom’s national oil company, bought a stake in Russian oil services company Novomet from RUSNANO for $200 million.

“So, even if [joint oil projects are] raised three times … it’s just a drop in the ocean,” Shirkhani added. “It just indicates that the two countries want to be on good terms having benefited from the fact that they cooperated on bringing stability to the oil market and also managing the disastrous plunge in the oil price earlier this year.”

Shirkhani also says this deal has to be taken “with a huge grain of salt” because of the economic situational and international politics.

“Aramco itself doesn’t have much money to invest abroad as Saudi Arabia has got budgetary problems so they don’t have spare cash to do it. … Aramco itself is borrowing money to pay this hefty dividend to the shareholders, which essentially is the Saudi government, owning over 97% percent of the company,” he said.

Shirkhani says that Russia, in turn, is limited by US-imposed sanctions.

“Do the Saudis want a lot of investment from Russia at a time when [many of] the [relevant] companies are sanctioned? I doubt it,” he said.

When it comes to Saudi Arabia’s political relationship with Saudi Arabia today, the Washington Institute’s Borshchevskaya says the two countries are partners based on the politics of the Middle East.

“Saudi Arabia, for its part, came to see Russia as a necessary regional reality, a channel of communication to the Assad regime, and also hoped, however falsely, that offering Russia more investments will pull Russia away from Iran,” she said. “Russia also in effect established itself over the years as a de facto OPEC member – essentially it wormed its way in – a remarkable achievement since it is technically not an official member.”

Putin is still trying, as his predecessors did, to exert power over Saudi Arabia. Evidence of this working was most eminently demonstrated in the form of the premiere trip by any Saudi monarch to Moscow in 2017 by King Salman bin Abdulaziz Al Saud.

“[This] spoke volumes about Putin’s push for influence in the Middle East, as the two countries expanded their trade and other forms of cooperation,” Borshchevskaya said.

The agreement to triple their oil partnerships with Saudi Arabia also demonstrates Putin’s power as well, according to Borshchevskaya.

“These events suggest Russia still holds quite a bit of sway in the Gulf, and more broadly the region,” she said. “[Saudi Arabia] is choosing to cooperate rather than conflict with Russia. This [also] shows you what happens when the West disengages from the region – other actors fill the void.”

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