Encouraged by the West, Russia finds a partner in Saudi Arabia

When Russia massively poured troops on the border with Ukraine and invaded the country at the beginning of the year, Saudi Arabia’s Kingdom Holding Company quietly invested more than $600 million in three dominant Russian energy companies.

Then during the summer, when the United States, Canada, and some European countries cut oil imports from Russia, Saudi Arabia doubled the amount of fuel oil it bought from Russia for its power plants, freeing up its own crude for export.

And, this month, Russia and Saudi Arabia directed the Organization of the Petroleum Exporting Countries and their allied producers to reduce output targets in an effort to prop up falling global oil prices, a decision that would increase both countries’ oil profits. .

Taken together, these moves represent a major tilt toward Moscow and away from the United States, with which it often associates itself. Saudi Arabia’s position no longer exists in a purely political alliance between Crown Prince Mohammed bin Salman of Saudi Arabia and President Vladimir V. Putin of Russia, but the two leaders have forged an agreement. favorable for both parties.

Bill Richardson, former US Secretary of Energy and Ambassador to the United Nations, said: “Clearly, the relationship between Saudi Arabia and Russia is deepening.

By working more closely with Russia, Saudi Arabia is making it more difficult for the United States and the European Union to isolate Putin. As Europe is poised to significantly reduce oil imports from Russia, Saudi Arabia and countries like China and India are joining as buyers of last resort.

During the Cold War, Saudi Arabia and the Soviet Union were arch enemies. Saudi leaders helped finance the insurgency against the Soviet occupation of Afghanistan. However, in recent years, hydraulic fracturing of the shale fields has led to a boom in US oil and natural gas production, reducing the power of OPEC and other producers. In other big oil companies like Russia, the two countries have considered each other as valuable partners. same hobby. This may help given that Saudi Arabia is an autocratic kingdom and Putin has suppressed or eliminated most of his domestic political opposition.

After oil prices crashed in late 2014 and 2015, Moscow and Riyadh teamed up to prevent American companies from dominating the global energy market. In 2016, Russia and Saudi Arabia agreed to expand their oil conglomerates, creating OPEC Plus. Their partnership proved to be long-lasting except for a brief collapse in early 2020, when the coronavirus pandemic began to lead to a drop in oil prices and the two countries disagreed over what to do.

Bruce Riedel, former Central Intelligence Agency Middle East analyst and author of “Kings and Presidents: Saudi Arabia and the United States Since FDR”

Saudi officials see Russia as a useful partner in managing OPEC Plus, a group of oil producers that are often picky with divergent ideas about how to manage oil supply and prices.

The group works closely with Alexander Novak, a former Russian energy minister who is now deputy prime minister. Analysts describe him as willing to sit with the ministers of other oil-producing countries for hours to hear their plans, concerns and grievances.

By announcing a small amount of production earlier this month, OPEC Plus demonstrated its independence from President Biden, who in July visited Saudi Arabia and exchanged a handshake with Crown Prince Mohammed. The visit is widely understood as Biden’s attempt to restore US-Saudi relations after he criticized the country during the 2020 US presidential election for the murder of Jamal Khashoggi, the official in charge of the Saudi government. column of the Washington Post.

For months, the president has been encouraging Saudi Arabia to produce more oil. Cartel production cuts have reversed the country’s policy of gradually increasing output.

Saudi Arabia is often allied with the United States, including quietly supporting efforts to improve relations between Israel and its Arab neighbors. For now, some analysts say, the kingdom appears to be putting more emphasis on its financial interests by working closely with Russia even as the United States and Europe seek to isolate and punish them. punish Putin for invading Ukraine.

“It is remarkable that Russia was able to keep Saudi Arabia around,” said Jim Krane, a Middle East expert at Rice University. “Putin’s goal is to achieve relations between the United States and its allies, and in the case of the US relationship with Saudi Arabia, Putin is making some progress.”

Oil executives in the Persian Gulf say that Saudi Arabia and other Gulf states are just doing what’s best for them.

Sadad Ibrahim Al Husseini, former chief executive officer of Saudi Aramco, said: “These decisions are protecting Saudi Arabia’s commercial interests and have great implications from Saudi Arabia’s economic point of view.

Several Middle Eastern energy executives say the United States and other Western countries are not reliable partners for oil exporters, in large part because they seek to phase out fossil fuels. around the world in an effort to tackle climate change.

Badr H. Jafar, president of Crescent Petroleum, an oil and gas company in the United Arab Emirates, said: “Schizophrenic energy policy for years in Europe and the US has led to loopholes. significant energy security that major producers are facing.” “And the energy chessboard is likely to continue to shift in the months and years to come.”

Many of Saudi Arabia’s moves toward Russia can also be interpreted as opportunistic decisions to make easy money.

When the stock prices of Gazprom, Rosneft and Lukoil – the three major Russian energy companies – tumbled earlier this year because of Western sanctions, Kingdom Holding Company, run by Saudi crown prince Alwaleed bin Talal Executives jumped in and invested about $600 million in it, according to regulatory filings.

Saudi Arabia’s sovereign wealth fund, led by Crown Prince Mohammed, holds a significant minority stake in Kingdom Holding.

The investment represents nearly half of the company’s new global equity investments in the first half of the year and comes at a time when many Western companies have announced that they are leaving Russia. It is one of the largest Saudi investments since the sovereign wealth fund announced a $10 billion fund to invest in Russia in 2015, although it is unclear whether Saudi Arabia will really invest all that money or not.

“This massive Saudi investment in the Russian energy sector is an attempt to further align Saudi interests,” said Gregory Gause, an expert on Middle Eastern politics at Texas A&M University. Saudi Arabia and Russia in maintaining prices”.

In April, Saudi Arabia and its closest ally, the United Arab Emirates, began ramping up imports of heavily discounted Russian refined fuel oil for use in homes. their electrics. By importing those fuels, Saudi Arabia can sell more crude oil to other countries at a premium.

Direct supply from Russia to Saudi Arabia reached 76,000 bpd in July, the second-highest total on record after September 2018, according to Kpler, a commodities and data research firm. Viktor Katona, an analyst at Kpler, added that Russian fuel oil may have entered Saudi Arabia indirectly through Estonia, Egypt and Latvia.

Much of that fuel oil used to go to the United States, where Gulf Coast refineries process it into gasoline, diesel and other fuels. However, the United States banned imports of Russian oil in March, leaving Russian exporters scrambling to find other buyers and offer the fuel at relatively low prices.

“It was a fire sale,” said Ariel Ahram, a Middle East expert at Virginia Tech.

Other countries like China and India also buy Russian oil, often at a discount of 30% or more. Saudi Arabia’s Russian fuel oil purchases are falling as the summer ends but could rise again next year.

Saudi-Russian relations have historically been multifaceted and rarely fully aligned. The two countries have backed a faction in Libya that is seeking control of the country ravaged by violence. However, Russia has long maintained close relations with Iran, Saudi Arabia’s biggest rival, including in relation to the civil war in Syria.

Crown Prince Mohammed has not spoken much publicly about Russia’s war in Ukraine. But at the United Nations in March, Saudi Arabia joined a majority of nations in voting for a resolution denouncing the invasion. The kingdom has also ramped up oil sales to Europe, replacing some of the oil that countries there used to buy from Russia.

“From the Saudi point of view, they certainly don’t want to be in the middle of a Western-Russian dispute,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.

But that reluctance should not be confused with neutrality, other experts said.

“I think MBS wants to play in the big leagues and whatever gives him a chance,” said Robert W. Jordan, who served as ambassador to Saudi Arabia during the George W. Bush administration. there, he’ll have a chance on it. “If there is a way to help Putin, well, and incidentally, it doesn’t hurt that he can show that he is not dependent on American influence.”

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