Pay heed to the butterfly effect of Putin-Salman oil deal in Hangzhou

Pay heed to the butterfly effect of Putin-Salman oil deal in Hangzhou

M.K. Bhadrakumar September 7, 2016 10:43 AM (UTC+8)
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The Russia-Saudi bonding in Hangzhou seems a tactical congruence to keep oil prices stable. Their energy alliance holds implications for western economic recovery which is critically linked to oil prices.  In strategic terms, Washington’s attempt to isolate Moscow is rendered ineffective because of Europe’s heavy dependence on Russia for energy supplies. Clearly, Russia has outmaneuvered the US on Middle Eastern chessboard.

In the early sixties, when Edward Lorenz, the late mathematician and meteriologist at MIT, observed during experiments of his weather model that small, seemingly inconsequential causes could cause a significantly different outcome, for aptly describing the phenomenon, he picked the metaphorical example of the details of a hurricane being influenced by minor perturbations such as the flapping of the wings of a distant butterfly several weeks earlier.

Saudi Crown Prince Salman and Putin at G20
Saudi Deputy Crown Prince Mohammed bin Salman (R) with Russian President Vladimir Putin in Hangzhou

Thus was born the tantalizing ‘butterfly effect’ in chaos theory – the concept that small causes can have large effects, or, conversely, that dynamical systems are highly sensitive to initial conditions.

How far Russian President Vladimir Putin and Saudi Deputy Crown Prince Mohammed bin Salman worked toward a ‘butterfly effect’ when they got together on Sunday in Hangzhou on the sidelines of the G20 summit, time only will reveal.

But the high probability is that they understood that the flapping of their emergent strategic partnership in the energy sector could trigger a tornado in the geopolitics of the Middle East.

Putin’s addressed Prince Salman in these measured words: “We attach great significance to expanding multifaceted and mutually beneficial cooperation with Saudi Arabia. This also applies to our bilateral relations, bearing in mind that we are the largest oil-producing countries. This also applies to international issues. We believe that without Saudi Arabia, no serious issue in the region, of course, can be solved.”

His razor-sharp mind couldn’t have been unaware that Franklin Roosevelt might have used the same words at the secret rendezvous with King Abdul Aziz Ibn Saud on February 14, 1945 in Alexandria to bind together the destinies of their two countries and shape the course of events in the Middle East for the next seven decades to come.

Prince Salman was quoted as responding to Putin that Saudi Arabia would like to work with Russia “to avoid any negative scenario in the Middle East”, stressing the importance of “spinning the wheel of economic cooperation even faster than now”.

Prima facie, the Russian-Saudi bonding at Hangzhou seems a tactical congruence to keep oil prices stable. The two countries account for almost 40% of the world’s oil exports. Both are keen to ensure that their economies, which critically depend on oil income, do not suffer from fall in oil prices. Both are willing to freeze production.

However, the Russian-Saudi joint statement issued in Hangzhou goes far beyond freezing of oil production. It speaks of “establishing a joint monitoring task force to continuously review the oil market fundamentals and recommend measures and joint actions aimed at securing oil market stability and predictability.”

It envisages the “deployment of new technologies, exchange of information and expertise to raise the level of technology applications in production, refining, storage, transport and distribution, as well as equipment production, support services such as engineering, manufacturing and research activities, along with collaboration in power generation and renewable energy.”

It looks forward to “creating a joint database on advanced energy technologies, along with feasibility assessments of their deployment, utilization, and financing through sovereign funds of both countries.”

Russia’s Energy Minister Alexander Novak said in Hangzhou:

  • In fact, we are opening a new era of our cooperation today. Our energy cooperation is moving toward a deeper and closer interaction, a strategic partnership. This became possible thanks to trust relations with our Arab friends… this (is a) new stage of relations between the two countries, OPEC and non-members. This is a historic moment.

Novak announced: “We are ready to join freezing oil production… Russia and Saudi Arabia are top oil producers with the highest impact on the industry. Our coordination will be crucial in stabilizing the market.”

Suffice it to say, the OPEC meeting in Algiers on September 26 will be taking place under dramatic circumstances. Saudi Arabia’s Minister of Energy, Industry and Mineral Resources Khalid Al-Falih said in Hangzhou:

  • I have to say all other producers are expressing interest in coordinating… with Saudi Arabia and other like-minded countries to reach a consensus. We are optimistic that Algiers meeting will provide a forum, and pre-Algiers, consultations which will take place bilaterally and in groups will bring us to Algiers with some sort of coordinated decisions.

If at the OPEC meet in Doha in April, Iran refused to freeze production, it has now reached very close to the pre-sanctions level of oil output. President Hassan Rouhani told the OPEC Secretary-General Mohammed Barkindo in Tehran on Tuesday “Iran will support any measure toward market stabilization and oil price recovery that is based on a fair and just share for member countries.”

Simply put, Iran too is now a stakeholder in keeping oil prices somewhere around $40-$50 per barrel. The prospects of a cap in production look better than ever in recent years.

An understanding between Russia and OPEC holds the potential to completely transform the geopolitical alignments in the Middle East. First and foremost, Russia aspires to replace the US from its 70-year old pivotal status as Saudi Arabia’s number one partner in energy.

This shift cannot but impact petrodollar recycling, which has been historically a robust pillar of the western financial system.

Washington has been caught by surprise and it probably explains the sudden ‘hardening’ by President Barack Obama at his meeting with Putin on Monday (which was expected to produce a breakthrough on Syria.)

A rattled Obama instead went into a huddle with his German and French counterparts.

On the contrary, with a firm alliance with Iran in hand, Russia is now cementing strategic partnership with Saudi Arabia, while on parallel track accelerating the normalization process with Turkey (with a nascent understanding apparent over the conflict in Syria).

Russia’s networking in the region also includes Israel, Egypt, Qatar, UAE, etc. Interestingly, when Putin returned to Moscow, the king of Bahrain was in the Russian capital to discuss arms purchases. Moscow’s latest initiative to host an international conference involving Israel and the Palestinians itself is a diplomatic snub to Washington.

The Saudi-Russian energy alliance holds implications for western economic recovery, which is critically linked to oil prices. In strategic terms, too, Washington’s attempt to ‘isolate’ Russia is rendered ineffective, since Europe’s heavy dependence on Russia for energy supplies will continue for the foreseeable future.

Equally, Washington’s plan to build an axis between the NATO and GCC is destined to flounder if the Persian Gulf region militates against any participation as West’s proxy against Russia.Clearly, Russia has outmaneuvered the US on Middle Eastern chessboard.

Washington faces the unpleasant prospect of a strategic retreat in the Middle East unless it can mobilize a determined comeback. But then, doubling down in the Middle East means taking the eye off the re-balance in Asia, which, in turn, will be fraught with long-term consequences.

Evidently, the tornado triggered by the butterfly wings in Hangzhou will not be confined to the Middle East. It promises to be a historic challenge to the US’ capacity to maintain influence on a global scale.

Ambassador MK Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India’s ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001). He writes the “Indian Punchline” blog and has written regularly for Asia Times since 2001.

M.K. Bhadrakumar
MK Bhadrakumar served as a career diplomat in the Indian Foreign Service for over 29 years, with postings including India’s ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001). He writes the “Indian Punchline” blog and has written regularly for the Asia Times since 2001.
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