By Syed Rashid Husain
April 01, 2018
The Washington visit of Saudi Crown Prince Mohammad bin Salman (MBS) may have yielded him more space on the Middle East political chess board, letting him operate as per his agenda, yet there are hints that MBS and the US oil producers could not agree on a joint market strategy.
Crude market stability is crucial to the political pursuits of MBS. With the Aramco IPO in mind and fresh from his Washington Yatra, in order to strengthen the oil markets, he came up with another idea – of long-term ‘crude’ cooperation with Russia. The crown prince seems to be looking seriously towards Moscow to help Riyadh stabilise the global oil markets that have been rattled by the development of US shale.
His goal seems simple at this stage — garnering the highest valuation of Saudi Aramco, so as to maximise the Aramco privatisation yield. MBS has two issues, he needs to show to his own constituency — the Saudis — that he has the capacity and acumen to alter the regional geopolitics and that he could achieve the valuation for Aramco, which everyone else felt unattainable.
Of course, MBS needs all the cash possible from the Aramco IPO so as to be able to continue playing the Game of Thrones in Riyadh and in the wider region. And despite all the chants of swaying the Saudi economy away from oil and its volatility, the fact remains; crude assets and its prices remain key to his ambitions. And MBS realises it well.
With American crude producers not ready to play in tune with him, MBS is now turning to Russia.
During an interview with Reuters, MBS revealed that in order to stabilise the crude market, Riyadh and Moscow were considering a long-term alliance between the Opec and Russia. “We are working to shift from a year-to-year agreement to a 10 to 20-year agreement,” the crown prince told Reuters in an interview in New York. “We have agreement on the big picture, but not yet on the detail,” he underlined.
The idea to extend the current oil supply cooperation between Opec and the Russia-led non-Opec producers into a kind of long-term framework of cooperation has been in making for some time now.
Last month, UAE’s Energy Minister Suhail Al Mazrouei hinted — probably for the first time — that the Organisation of the Petroleum Exporting Countries (Opec) and Russia were planning long-term cooperation and that the draft to create a ‘super group’ of oil producers, could be ready by the end this year. The statement from MBS, at the end of his Washington Yatra, basically formalises the move.
This seems a win-win scenario for both Riyadh and Moscow. Cooperation with Russia would definitely help Saudi Arabia, the oil Kingdom, in gaining upper hand in the oil markets. It would also help stabilise the oil markets, so crucial to the goals, objectives; and the overall profile of Saudi Arabia.
And on the other hand, the move also strengthens Russia’s (political) hand in the Middle East where the United States has long been the dominant super-power. “It is a very important strategic development,” Helima Croft of RBC Capital Markets said. It is a “sign of a major reversal in Saudi-Russia relations. Saudi Arabia was a staunch cold war ally of the US Now this Russia-Saudi alliance appears to be thicker than oil and seems to be driven by the personal affinity between Putin and MBS,” underlined Croft.
And Croft has a point.
News of the potential oil alliance comes at a time when the two have been working to cement an economic relationship despite being at odds over the conflict in Syria, where they back opposing sides. Riyadh supports rebels fighting Syrian President Bashar al-Assad’s army, while Russian and Iranian forces have backed Assad – meaning that Russia effectively sides with Iran, Riyadh’s regional arch-foe.
The question here is; how would this growing ‘crude’ amity between Moscow and Riyadh be viewed in Washington? While Trump has made it clear, his interest basically lies in Saudi money, as he indicated in the Oval Office, while MBS was sitting alongside, by sharing the numbers of jobs the Saudi orders would generate in the US.
Being a businessman that Trump is, he is ready to extend some carrots to Riyadh too, in form of political acrobatics on Iran and Syria.
The current state of Saudi-US relationship thus remains a business deal, whereas, in the longer run, Saudi ‘crude’ interests seem more entwined with Russia. The outburst from MBS was just an indication of the reality.