Russian President Vladimir Putin (left) with Saudi Deputy Crown Prince
and Defence Minister Mohammed bin Salman during a meeting at the Kremlin
in Moscow on May 30, 2017. AFP PHOTO
A meeting between the two men who run
Russia and Saudi Arabia's oil empires spoke volumes about the new
relationship between the energy superpowers.
It was the
first time that Rosneft boss Igor Sechin and Saudi Aramco chief Amin
Nasser had held a formal, scheduled meeting - going beyond the numerous
times they had simply encountered each other at oil events around the
world.
Their conversation also broke new ground,
according to two sources familiar with the talks in the Saudi city of
Dhahran last week who said the CEOs discussed possible ways of
cooperating in Asia, such as Indonesia and India, as well as in other
markets.
The sources did not disclose further details,
but any cooperation in Asia between Russia and Saudi Arabia - the
world's two biggest oil exporters - would be unprecedented.
State
oil giant Aramco confirmed the meeting took place but declined to give
details of the closed-door talks, which took place on the same day as
OPEC kingpin Saudi Arabia and non-OPEC Russia led a global pact to
extend a crude output cut to prop up prices. Kremlin oil major Rosneft
declined to comment.
The meeting - which also saw
Nasser give Sechin a tour of Aramco's HQ, according to the sources -
gives an insight into the newfound, unexpected and fast-deepening
partnership between the two countries. It is one that will be closely
watched by big oil consumers around the world which have long relied on
the hot rivalry between their top suppliers to secure better deals.
Such a detente between Moscow and Riyadh would have been almost unthinkable in the past.
Up
until a year ago, the two sides had virtually no dialogue at all, even
in the face of a spike in U.S. shale oil production that had led to a
collapse in global prices from mid-2014. Sechin was strongly opposed to
Russia cutting output in tandem with OPEC.
In a sign of
their white-hot Asian rivalry, Rosneft outbid Aramco to buy India's
refiner Essar last year and boost its share in the world's fastest
growing fuel market.
Fast forward a matter of months,
and Moscow and Riyadh have become the main protagonists of the pact to
cut output - agreed in December and extended last week - and are even
discussing possible cooperation in their core Asian markets.
"It is a new 'axis of love'," one senior Gulf official said of the relationship.
On
Tuesday, Putin welcomed Saudi Deputy Crown Prince Mohammed bin Salman
in the Kremlin and both men said they would deepen cooperation in oil
and work on narrowing their differences over Syria, where Moscow and
Riyadh are backing opposing sides in a civil war.
"The
most important thing is that we are succeeding in building a solid
foundation to stabilize oil markets and energy prices," said Prince
Mohammed.
Putin said the countries would work together to resolve a "difficult situation".
Why now?
The
first attempt at cooperation between the two countries failed
spectacularly with both sides unable to agree joint actions at an OPEC
meeting in December 2014, six months after oil prices began tumbling
from above $100 a barrel.
To add insult to injury,
Sechin pledged to keep pushing output higher, even if prices fell to $20
per barrel. Saudi's then oil minister, Ali al-Naimi, retaliated by
saying the Russian oil output would collapse as a result of low prices, a
prediction that turned out to be wrong.
Much has
changed since then, however, economically and politically - and the
unlikely partnership between Moscow and Riyadh has been born out of
necessity.
When oil prices collapsed, both economies
were driven into deficit after years of high spending and are only now
slowly recovering. With Russia heading for a presidential election in
early 2018, and Prince Mohammed having pledged to reform the Saudi
economy and publicly list Aramco, neither country can afford another oil
price shock.
The ousting of veteran minister Naimi and
his replacement with the more pragmatic Khalid al-Falih last year also
appeared to have helped, with their dialogue facilitated by OPEC's new
secretary general Mohammad Barkindo.
"If minister Falih
says something, I know it will be done," Russian Energy Minister
Alexander Novak said last week in Vienna after Russia and OPEC agreed to
extend output cuts.
Novak is looking to organize a
trip for Falih to a Russian Arctic field, having visited Aramco's
facilities in the Empty Quarter desert himself last October. "Last year,
minister Falih took us to a desert - we want to show him an ice
desert," Novak joked last week.
Barkindo told Reuters:
"They (Saudi Arabia and Russia) are the leading lights of the
Declaration of Cooperation between OPEC and non-OPEC which has opened a
new chapter in the history of oil."
'Spasibo'
On
Tuesday, Novak and Falih reiterated in Moscow they would do "whatever
it takes" to stabilize oil markets, borrowing a famous phrase used by
European Central Bank President Mario Draghi five years ago to defend
the euro.
They also discussed the outlook for non-OPEC
production including U.S. shale output, which has resumed growing over
the past year as private American producers have cut costs and adapted
to lower prices.
US crude is now being exported all
over the world and the chances of private producers agreeing to
cooperate with OPEC are minimal because of tough U.S. anti-monopoly
legislation.
"Both Russia and the Gulf countries are
interested in some type of oil price stabilization and they hope that
they can achieve this without undertaking a sort of massive cuts which
they had to do back in the 1980s," said Paul Simons, a former U.S.
diplomat now serving as deputy executive director of the International
Energy Agency.
Saudi Arabia and Russia say they will remain in partnership long after the current output reduction deal expires.
"It
is necessary to work out new framework principles for continued
cooperation between OPEC and non-OPEC even after the expiration of the
Vienna agreements," Novak said on Wednesday.
Falih, for his part, ended his speech by thanking Novak in Russian: "Spasibo."
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