When It’s All About Oil

For more than two decades, the U.S. has worked to integrate Russia into the global economy in order to align Russia’s interests more with American and European ones.

Nevertheless, Putin has shown with the war in Ukraine that he is unwilling to moderate his ambitions and Russia’s ties to the world economy have now become one of its strategic assets, as the U.S. and Europe experience how difficult it is to isolate Russia’s economy without damaging their respective economies.

In this context, Russia has exploited the U.S. political vacuum in the Middle East to penetrate into the Saudi economy. Indeed, Eugene Rumer, the director of the Russia and Eurasia Program at the Carnegie Endowment for International Peace said that as time passed, the Saudis have come to see the U.S. as a “less reliable partner”, creating an opening for Russia. He added that Moscow and Riyadh “share a common aversion to the U.S. bringing up human rights as a major policy issue”. 

Russia’s Relationship with Saudi Arabia and the OPEC

Russia’s relationship with Saudi Arabia was tense following the Soviet Union’s invasion of Afghanistan in 1979 and the Saudi and U.S. effort to back fighters resisting the Russian occupation. Diplomatic relations between Moscow and Riyadh were re-established only in 1992.

Russia and Saudi Arabia took a step closer to each other at the 2016 G20 summit when Saudi Arabia – a leading OPEC member – and Russia agreed to cooperate in global oil markets to tackle a worldwide surplus. That’s when Moscow joined an expanded version of the Organization of the Petroleum Exporting Countries, known as OPEC Plus (or OPEC+), in an attempt by the Saudi leaders to compete with the U.S. which has developed fracking and shale extraction technologies that boosted U.S. oil production.

Later that year, Russia agreed to join OPEC’s commitment to reduce oil output, with cuts into effect from 1 January 2017 to last for six months. In April 2017, prince Mohammed bin Salman told The Washington Post that the Saudis had been “coordinating their oil policies recently”.

On 5 March 2020, OPEC cut its total production of oil and called upon OPEC+ participants to do the same. However, the Kremlin refused, marking the end of the unofficial partnership with OPEC followed by a Saudi boost in production to increase its market share, leading to an oil price war between the countries. 

Biden’s Role

On the campaign trail, President Biden harshly criticized Saudi Arabia, saying the kingdom should be treated as a “pariah” after the murder of Saudi journalist and dissident Jamal Khashoggi.

But in July, Biden traveled through the Middle East for the first time as President, and his campaign’s emphasis on human rights has given way to realpolitik. Washington D.C. has concluded that the U.S. needs Saudi Arabia on its side for a new era of confrontation with Russia that started with the invasion of Ukraine.

The Saudi oil producers agreed in June to increase oil sales – despite the Net-Zero Goal – but production so far has lagged behind the targets as any increase in oil production from the region will take a long time to have an impact on high U.S. gas prices.

Latest developments

Based on conversations during Biden’s bilateral and multilateral meetings on his recent visit to Saudi Arabia, Saudi Energy Minister Prince Abdulaziz bin Salman met on July 29 with Russian Deputy Prime Minister Alexander Novak to discuss the latest developments in the work of the joint Saudi-Russian committee and discussed opportunities for cooperation between their countries.

Their meeting just came ahead of the 31st OPEC+ annual meeting held on August 3. During the conference, OPEC and its allies prospected of slowing demand to lift supply by just 100,000 barrels a day, just a small fraction of the group’s overall production: delegates said they are concerned that a possible recession in North America and continuous Covid-19 lockdowns in China will sour demand. 

OPEC’s measures come as oil settled at the lowest in six months since Russia began its war. In the meanwhile, investors are fretting about a global economic slowdown and signs that some of the strength in crude markets over recent times may be easing.

 

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