As OPEC watches nervously, Russia and Saudi Arabia create a new axis – of oil

Vladimir Putin and Saudi Crown Prince Mohammed bin Salman sat together in the stands at Moscow’s Luzhniki Stadium last week, locked in animated conversation as Russia's soccer team crushed Saudi Arabia’s 5-0 in the kickoff game of the FIFA World Cup.  It wasn’t just soccer that brought Mr. bin Salman to Moscow with his energy minister, Khalid al-Falih, in tow. 

The next day it was announced that Russia and Saudi Arabia had agreed to “institutionalize” their two-year old bilateral arrangement to coordinate oil production targets in order to smooth out global price fluctuations. Being two of the world’s three biggest oil producers – the third is the United States – their combined weight can be decisive.  In 2016, Moscow and Riyadh agreed to slash production, and prices have since edged up from around $40 per barrel to more than $65 at present. 

The world may not be shifting on its axis yet, but the new relationship between Russia and Saudi Arabia is a clear sign of changes in the wind. Russia is more active in the Middle East than at any time since the collapse of the Soviet Union, and it is forging fresh ties with a variety of regional countries. Those include some, besides Saudi Arabia, that it never had particularly friendly relations with in the past, including Israel, Iran, Qatar, and Turkey. 

The relative success of Russia’s military intervention in Syria has made it an indispensable player in shaping any future peace settlement, and is part of the reason many Middle Eastern leaders have been beating a path to Moscow in the past couple of years. But growing uncertainties about the US role and its reliability as a partner are clear factors in some countries seeking to diversify their foreign ties.

“There has been something cooking between Russia and Saudi Arabia since King Salman made his completely unprecedented visit to Moscow a couple years ago,” says Sergei Strokan, foreign affairs columnist with the Moscow business daily Kommersant. “It’s driven by common interest in the global oil market, but there is a lot more going on.” 

This week Saudi Arabia and Russia agreed to increase production by up to 1.5 million barrels per day, which could lead to falling global prices. That decision that is not likely to go down well with the Saudi-led Organization of Petroleum Exporting Countries (OPEC), many of whose leading members, including Iran, Venezuela, and Iraq, need prices to stay high.  They are threatening to scuttle the deal when OPEC holds its annual summit in Vienna on Friday. But Russia is not a member of OPEC, and its growing collaboration with Saudi Arabia in massaging global oil markets suggests that dealmaking between the two oil-producing giants may be eclipsing OPEC.

“Putin and bin Salman are clearly calculating that since some OPEC countries, like Venezuela and Iran, are under US sanctions, they will not be exporting as much oil as before,” says Yelena Melkumyan, an expert with the Russian State University for Humanities in Moscow. “The production-cutting deal Moscow and Riyadh made in 2016 worked very well, and prices are at a good level now. But Saudi Arabia needs more revenue for its ambitious 2030 economic development vision. Russia has a lot of planned infrastructure-building to fund. Both countries want to increase income, and it’s their priorities – not those of other OPEC countries – that are driving this idea to increase production. That’s the main thing that brings them together right now.”

Saudi Arabia is one of several traditionally US clients, such as Qatar and Turkey, that are currently negotiating to buy Russian weaponry, particularly the S-400 air defense system. That’s a radical departure from past practice for these countries, who have always acquired Western, mainly US, arms. The mere prospect of such sales led the Trump administration’s nominee for assistant secretary of State for Near Eastern Affairs, David Schenker, to warn those countries could be sanctioned by the US if they go ahead. 

“I would work with our allies to dissuade them, or encourage them, to avoid military purchases that would be potentially sanctionable,” he said at his Senate confirmation hearing. “In other words, I would tell Saudi Arabia not to do it.”

That could backfire, says Mr. Strokan.

“Quite a few countries are hearing these threats of sanctions from the US due to their military and technical relations with Russia. Even big countries, like India, are getting this message. Some of them may decide they need to assert their sovereignty, as well as lessen their dependence on the US, and that can work in Russia’s favor,” he says.

Russia’s main vulnerability, experts say, is that it is trying to be friends with everyone at once. “We seek dialogue, even with difficult partners like Turkey, Israel, and Iran. This is a hallmark of current Russian diplomacy,” says Vladimir Yevseev, an expert with the Institute of World Economy and International Affairs, which is part of the Russian Academy of Sciences in Moscow. 

So far it has proved successful, but there are many ways it could go wrong. 

For example, Saudi Arabia has been angered by Moscow’s warming ties with Qatar, a Gulf state it has been trying to blockade for more than a year. Indeed, bin Salman threatened “military action” this month against Qatar if it acquires the Russian air defense system. 

Iran and Russia have improved their relations, forging a de facto military alliance in Syria, but that could prove a serious impediment for Moscow in further developing ties with Saudi Arabia, Iran’s main adversary. Some experts suggest that Saudi offers to procure Russian arms may be more an effort to buy influence in Moscow than any desire to switch suppliers.

“Saudi efforts to lobby in Russia are not likely to have any impact,” says Dr. Melkumyan. “There has been no change at all in the Kremlin’s position in Syria, which is fixed on certain principles that the Saudis are not likely to shift with a few billion dollars in arms purchases. As for Iran, I sincerely doubt that Russia could change its position on anything, even if it wanted to.”