Saudi power shift risks skidding on oil slick
Russia may welcome the rise of Mohammed bin Salman but will closer cooperation between the two oil giants allow them to control prices?
Reading tea leaves in the convoluted world of Saudi politics can be tricky. So, Moscow’s jubilation over the appointment of Mohammed bin Salman as the Crown Prince of Saudi Arabia and the next in line to the throne is intriguing.
The Crown Prince whom King Salman dismissed, Mohammed bin Nayef (MbN), had held the post of Saudi Arabia’s interior minister continuously since 2012 and had years of experience in intelligence work. MbN used to be regarded as the most pro-American of the Saudi leadership.
In February, Mike Pompeo made his first overseas tour as CIA chief to Riyadh to confer the George Tenet Medal on MbN in recognition of his “excellent intelligence performance in the domain of counter-terrorism and his unbound contribution to [realizing] world security and peace”. Just four months later, King Salman has dismissed MbN.
Presumably, Moscow would heave a sigh of relief that MbN has been retired. More importantly, Russian state news agency TASS promptly carried a report – quoting expert opinion, of course – that the new Crown Prince may be “ready to reach compromises concerning complex regional issues – the crises in Syria and Yemen.”
The TASS report gave fulsome praise to MbS’ “political farsightedness by building trust-based dialogue with the Russian authorities, particularly with President Vladimir Putin”, which has taken the Saudi-Russian relations to “an unprecedented high in the past years”, and leading to a partnership that “opens the door to resolving conflicts in the Middle East.”
Indeed, MbS is a familiar figure for the Kremlin. He visited Russia four times during the past two years to meet with Putin. A Moscow analyst at the Russian new agency Sputnik wrote on Wednesday:
The fact that Mohammed bin Salman is slated to be Saudi Arabia’s next King – provided of course that no “black swan” event removes him from that position first – is wildly good news for Russia and China because of the very productive working relationships that each of them has established with the new Crown Prince. Neither of them endorses his militant policies in waging the war in Yemen or in bullying Qatar, but they understand just how positively transformational a figure he’s poised to be … Russia and China are poised to see their own interests promoted if Mohammed bin Salman becomes the next Saudi King.”What explains such an expectation? The matrix of Saudi-Russian energy cooperation largely explains it. The OPEC decision to cut oil production has been a joint Saudi-Russian project aimed at balancing supply and demand in the oil market and keeping oil price stable at around $50 per barrel.
What explains such an expectation? Primarily, the matrix of Saudi-Russian energy cooperation. The OPEC decision to cut oil production has been a joint Saudi-Russian project aimed at balancing supply and demand in the oil market and keeping oil stable at around $50 per barrel.
Moscow and Riyadh have a congruence of interests in stabilizing their oil income. But this congruence also involves countering the US’ rapidly growing profile as an energy exporter.
The main threat to the Saudi-Russian project comes from the US shale industry, which is in a position to boost production to leverage oil prices by creating a glut in oil supply.
As a countermove, Saudi Arabia and Russia hope to strengthen the oil cartel with Russia becoming an OPEC member. This oil cooperation strategy might even assume a huge dimension if an integration can be brought about between OPEC and the Gas Exporting Countries Forum.
The grand design will be that a mega cartel will be well-positioned to block any disruptive role by the US shale oil and gas industry. In geopolitical terms, Russia and Saudi Arabia are joining hands to counter competition from the US in the energy market. And that is no small matter since the petrodollar lubricates the US-Saudi alliance.
This is a high-stakes game against the backdrop of the proposed IPO of Aramco, expected early next year, aimed at providing the first injections of capital into a massive sovereign wealth fund that could provide the underpinning for MbS’s ambitious Vision 2030, the long-term development project through which he hopes to transform Saudi Arabia into a diversified and efficient economy and to modernise the country.
MbS’ evaluation of the IPO at $2 trillion is being severely contested in the West. A Reuter analysis on Thursday estimated that if oil prices remained at $50 a barrel, Aramco would be worth less than $1.1 trillion.
The Trump administration is strongly supporting the possibility of the Aramco IPO – potentially the biggest in history – taking place on the New York stock exchange. But Saudi Arabia is uneasy about the idea due to US laws that allow victims of 9/11 attacks to sue the Saudi government.
With this in mind, eyebrows were raised when the US State Department came out with an extraordinary statement on Tuesday casting aspersions on the Saudi stance on the standoff with Qatar. Coincidentally, the statement was released at the same time as the royal decree on MbS’ appointment as Crown Prince.
State Department spokesperson Heather Nauert hinted the US may have to take a formal mediation role between Saudi Arabia and Qatar and made a sharp reference to Saudi Arabia’s involvement in terrorism – “whether it is through terror financing or other means” – and for not doing enough to fight terrorism.
The Russian analysts sounded a note of caution that MbS may run into strong headwinds in his bid to succeed his father. After all, they know that control of the world oil market was a strategic theme of the Cold War – and it cannot be otherwise in a New Cold War either.
US State Department strategists had maintained as far back as the 1940s that to maintain “substantial control of the world” through control of Middle Eastern oil ought to be “one of the greatest material prizes in world history” – to quote from a 1945 memorandum to President Harry Truman.