In the slideshow that is Middle Eastern politics, the series of still images seldom add up to make an enduring narrative. And the probability is high that when an indelible image appears, it might go unnoticed – such as Russia and Saudi Arabia wrapping up huge energy deals on Wednesday underscoring a new narrative in regional and international security.
The ebb and flow of events in Syria – Turkey’s campaign in Afrin and its threat to administer an “Ottoman slap” to the United States, and the shooting down of an Israeli F-16 jet – hogged the attention. But something of far greater importance was unfolding in Riyadh, as Saudi and Russian officials met to seal major deals marking a historic challenge to the US dominance in the Persian Gulf region.
The big news is the Russian offer to the Saudi authorities to invest directly in the upcoming Aramco initial public offering – and the Saudis acknowledging the offer. Even bigger news, surely, is that Moscow is putting together a Russian-Chinese consortium of joint investment funds plus several major Russian banks to be part of the Aramco IPO.
Chinese state oil companies were interested in becoming cornerstone investors in the IPO, but the participation of a Russia-China joint investment fund takes matters to an entirely different realm. Clearly, the Chinese side is willing to hand over tens of billions of dollars.
Yet the Aramco IPO was a prime motive for US President Donald Trump to choose Saudi Arabia for his first foreign trip. The Saudi hosts extended the ultimate honor to Trump – a ceremonial sword dance outside the Murabba Palace in Riyadh. Hardly 10 months later, they are open to a Russian-Chinese consortium investing in the Aramco IPO.
Riyadh plans to sell 5% of Saudi Aramco in what is billed as the largest IPO in world history. In the Saudi estimation, Aramco is worth US$2 trillion; a 5% stake sale could fetch as much as $100 billion. The IPO is a crucial segment of Vision 2030, Saudi Crown Prince Mohammad bin Salman’s ambitious plan to diversify the kingdom’s economy.
Aramco signs MoU with Novatek
Also on Wednesday, Saudi Aramco signed a memorandum of understanding with Novatek, Russia’s largest non-state natural-gas producer, regarding Saudi investment in the latter’s LNG (liquefied natural gas) projects – specifically, in the $20 billion Arctic LNG-2, which is expected to be on stream in 2023 and has a capacity of 18 million metric tons annually.
Saudi Minister of Energy, Industry and Mineral Resources Khalid Al-Falih told the media in Riyadh, “This is a big project. It will become part of Aramco’s gas strategy.” The agreement will be showcased as the centerpiece of the St Petersburg International Economic Forum in May. (Novatek is also interested in building a regasification terminal in Saudi Arabia.)
Other Saudi-Russian energy deals in the making include investment by Aramco and the Saudi sovereign wealth fund (Public Investment Fund, or PIF) in the Russian company Eurasia Driller, a major independent driller, which has been seeking entry to onshore and offshore projects in Saudi Arabia. The Saudi and Russian officials also disclosed that Russia had made a formal proposal to build two nuclear reactors in Saudi Arabia and that the contract was expected to be awarded by next year.
Indeed, these deals must be seen in the backdrop of the Saudi-Russian alliance to sustain the oil price through production cuts until the end of 2018. In 2015, the Russian Direct Investment Fund and Saudi Arabia’s PIF joined hands to make investments in projects in Russia. Last year, RDIF and PIF announced the creation of a Russia-Saudi Investment Fund with total committed capital of $6 billion to pursue investment opportunities, primarily in Russia, and in joint ventures that can help Saudi Arabia’s economic diversification.
Tectonic shift
Historically, Saudi Arabia has been seen as a pivotal country in the United States’ Middle East energy strategies, which formed a core template of Cold War-era politics to keep the former Soviet Union out of the region. The past week’s developments signify that the tectonic plates are shifting.
And history might repeat. Reminiscent of the so-called Quincy Agreement of February 1945 between US president Franklin Roosevelt and King Abdul-Rahman bin Abdulaziz, founder of Saudi Arabia, the emerging Saudi-Russian energy alliance will most certainly trigger an overall expansion of relations between Russia and Saudi Arabia, including in defense and security fields.
Russian President Vladimir Putin telephoned King Salman bin Abdulaziz Al Saud on Wednesday, when they discussed “a wide range of bilateral cooperation, primarily in trade and defense technology” and “expressed readiness to boost meaningful coordination in global hydrocarbon markets,” according to Moscow. The Kremlin readout highlighted that Putin and King Salman discussed Syria and Saudi Arabia’s standoff with Qatar – and, possibly, Iran too.
Interestingly, the Kremlin statement cited Putin as regretting that “the current crisis by no means contributed to the consolidation of joint efforts in the struggle against a terrorist threat or the stabilization of the Middle East in general.” Indeed, it cannot be lost on the Saudis that what distinguishes Russian diplomacy is that unlike the traditional US tactic of exploiting regional tensions and divisions, Moscow focuses on beneficial cooperation. Quite obviously, the Russian military bases in Syria or Russia’s axis with Iran do not impede a full-bodied Saudi-Russian strategic relationship.
Suffice to say, Russia is positioning itself, in geopolitical terms, to shape outcomes in the Middle East and to enhance its standing as a great power, while also advancing its economic, political and security interests. The contrast with the US couldn’t be sharper.
Radio Free Europe/Radio Liberty reported last week that while addressing a closed-door meeting of the Russian Union of Industrialists and Entrepreneurs, a prominent group of industrialists and business tycoons, in Moscow on February 9, Putin predicted that “those who are doing this [imposing sanctions] will themselves tire of it soon.” The news from Riyadh signals that Putin’s prediction is well grounded.
When Russia teams up with China and Saudi Arabia in making such massive investments in the energy field, the US sanctions aimed at denying Western capital and technology to stymie Russia’s oil industry have been rendered meaningless.
Technology to convert crude oil into gas is already available. US fracking technology has eneabled it to become a net exporter of crude. The only way for Russia and Saudis to compete is Yo team up with the world’s biggest consumer namely China. Once that is done, Yuan is safely estavlished as alternative to USD.
Nelson Leeson Its a pity that Indian commenters are always uncouth and uncivilized in their writings and comments. Instead of participating in a discusion with arguments, they resort to name-calling and open abuse. Just read comments in various articles and you will agree with me.
Ram Anand trump and mody is the best possible like minded frends and best slected democratic leader, hahahaha ,u idiot
@Ram Anand, If Russian are drunkard, then Indians must be the most hypocritical nation in the world.
That’s why Saudis, Turkey and Iran are all buying modern Russian air defense systems.
Nelson Leeson that is a disgusting comment.. A real disgrace to talk in such a way indeed.
Ram Anand low life indian scum , never talk about anyone untill you clean your shithouse. hahahhahahah
Well said 110% agree with your opinions.
The US has chosen the worst possible friends – criminal nations China, Pakistan, Saudi Arabia – all of whom have knifed it in the back. The US spent crazy years destrying Vietnam which has always hated China and is now a US ally. The US also ostracised India for a long time, which too was a very stupid thing to do. And now it has crowned all its stupidity by choosing that oaf Trump as its leader…However, the US is a democracy and can correct its errors. China is trapped with Xi Jing Pimp.
The US has chosen the worst possible friends – China, Pakistan, Saudi Arabia – sll of whom have knifed it in the back. The US spent crazy years destryong Vietnam which has always hated China and is now a US ally. The US also ostracised India for a long time, which too was a very stupid thing to do. And now it has crowned all its stupidity by choosing that oaf Trump as its leader…However, the US is a ddemocracy and can corect its errors.
What the hell are you doing in India? We don’t need snakes like you.
Bhadrakumar is a confirmed prostitute for (Ras)Putin and Xi Jing Pimp.
Russia today is a country of drunks and anti-semites with a dwindling population. It has half the GDP of India. Eventually the russian people will get tired of (Ras)Putin’s bandit rule and seek a motre civilized politics. What will the whore Bhadrakumar croak then?
no one is denying that russians were involved in the attack on US/kurds base in the region. Who is to blame?
It seems the US has entered into an era of decline. US power and influence will continue to fizzle out.
It is becoming a multipolar world..
Putin sees the frustration of the Arab world, first at the grassroot level and now sipping upwards into the ruling classes. He sees a slow shattering of the Petrodollar yolk on world oil and gas markets. In collaboration with Saudi et al, Russia’s economy can free itself of a western strangle. Sensible manoeveur!
Based on this report and commenters here, they all under estimate the lengths that US currency/military hegemony will go to maintain their belligerant, evil Empire.
Seems a little like swimming against the longer-term tide to invest in and to aim to continue to depend on oil so heavily. Gas is a different story.
A 5% share ($100 billion in value, which is not as large as it sounds compared with Russia’s total Annual export earnings at over $500 billion) in Aramco in a deteriorating Saudi economy based on a growingly unpopular product (oil, not gas) whose use is decreasing in relative terms, seems insignificant.
Political motivations (showmanship against USA by all parties involved) are likely to be the main driver here, as the econmic future is in renewables. China understands that.
They say blood is thicker than water, but oil is thicker than both. Russia and KSA, as the two tip oil exporters share common interests. Once the US was a major oil importer, but no more. Now it is China which is buying the oil and will soon launch the Petro-yuan. Read the story on the sidebar. It is these kinds of economic forces which determine political and military affairs, not the other way around.
For the house of Saud it is a "win win" situation. Because of this family the nation of "Arabia" is allied with Israel and the US on so many fronts.
It is interesting the article points to the meeting of President Roosevelt and King Abdul-Rahman bin Abdulaziz, founder of Saudi Arabia. There is already enough dubious questions hanging over Roosevelt and World war 2 to the founder of Saudi Arabia.
As far as I am concerned Jewish power in the Middle East includes Jerusalem, Riyadh and DC.
The US should welcome the competition. Competition will force US companies to adapt, be more efficient and is good for everyone including open markets.