President Vladimir Putin began talks with Saudi King Salman bin Abdulaziz, who’s making a historic first visit to Russia by a monarch of the Gulf kingdom as the two energy superpowers seek an understanding on whether to extend an agreement curbing oil supplies.
The Kremlin summit is a “landmark event” that will give a “good impetus” to bilateral relations, Putin told King Salman on Thursday. The Saudi leader, who arrived for the four-day state visit late Wednesday, called Russia a “friendly” country and told Putin that their talks will boost the global economy as well as aid international stability and security.
The Saudi courtship of Russia reflects a convergence of interests between the world’s two largest oil exporters as the output pact between the Organisation of Petroleum Exporting Countries and non-OPEC producers has spurred a recovery in crude prices.
King Salman’s journey to Moscow, ahead of planned talks with President Donald Trump in Washington early next year, is also a recognition by Riyadh of the changing political balance in the Middle East after Putin successfully countered indecisive US efforts to topple Syrian leader Bashar al-Assad.
“Is there really anything in the world that’s absolutely permanent?” Putin told an energy forum in Moscow on Wednesday, in response to a question about whether Saudi Arabia will always align with the US on geopolitical issues. “It seems to me, on the contrary, that everything’s changing.”
Putin said Wednesday that Russia may agree to extend the oil-supply agreement with OPEC to the end of 2018, though he’ll wait to make a decision until nearer the expiry of the existing pact in March. The arrangement that took effect in January benefits oil consumers as well as producers because it guarantees a “stable market,” he said.
Saudi Arabia will secure Russian backing to extend the oil pact, “but the Kremlin will insist that the deal include some form of tapering,” Eurasia Group analysts including Ayham Kamel, Middle East and North Africa practice head, said in an emailed note. The visit “will lay the foundation for strategic cooperation that transcends energy issues, though the Saudis have no intention of abandoning their deep partnership with the US.”
Cooperation between Russia and Saudi Arabia “breathed life back into OPEC” and made his country more optimistic about the outlook for oil than it has been for several years, Saudi Energy Minister Khalid Al-Falih said after meeting with his Russian counterpart Alexander Novak on Thursday. The “success of this collaboration is clear,” he said.
King Salman is visiting as Saudi Arabia looks to deepen energy ties with Russia by inking deals to acquire oil and gas assets. Deals may involve Saudi participation in an Arctic LNG project led by Novatek, investment into Eurasia Drilling Co, Russia’s largest oil drilling contractor, and a petrochemicals venture involving Sibur Holding.
Saudi pledges of large investments in Russia “have disappointed in the past,” and just $1 billion has materialized out of a planned $10 billion partnership with the Russian Direct Investment Fund in 2015, according to Eurasia Group.
The head of Russia’s state-run oil giant Rosneft, Igor Sechin, said last month that there’ll be pressure for OPEC and its partners to extend production cuts if Saudi Arabia proceeds with an initial public offering of a stake in state-owned Saudi Arabian Oil Co. About 5 percent of Saudi Aramco, as it’s known, will be offered in an IPO next year that could value the company at more than $1 trillion, depending on the state of the oil market.
“The Saudis will be looking for a solid commitment from President Putin to stick with the production deal with OPEC,” said Chris Weafer, a partner at Macro Advisory in Moscow. “That is Riyadh’s best hope for keeping the price of Brent in the mid $50’s, if not getting it above $60 in time to support the kingdom’s ambitious valuation target for Aramco.”
The unlikely partnership between Moscow and Riyadh marks a sharp turn-around from Soviet times. Saudi Arabia cut off relations with the atheist Communist state in 1938, only restoring them after the Soviet collapse. Together with the CIA, the Saudis also armed mujahedeen fighters who ended the Soviet Red Army’s 10-year occupation of Afghanistan.
Still, tensions remain over Syria, where Saudi Arabia is pressing Russia to rein in Iran, which the kingdom regards as its chief rival in the region, following the defeat of rebels backed by Riyadh in the war against Assad.
King Salman “won’t demand the impossible” at his meeting with Putin, said Irina Suponina, a Middle East expert at the Russian Institute of Strategic Studies, which advises the Kremlin. “Saudi Arabia is aiming for real cooperation with Russia and understands that you can’t split Russia from Iran,” she said.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.