The Saudis prefer to maintain close ties with Russia in oil policy, as the OPEC+ pact and control of a large part of the world’s oil supply have benefited both OPEC+ leaders — the Kingdom and Russia — over the past half-decade. Saudi Arabia, however, could use a little thaw in Saudi-US relations under President Biden, who no longer refers to the world’s top crude exporter as a “pariah” state.
The Saudis are carefully maneuvering to keep Russia as an ally in the OPEC+ group and possibly improve relations with the United States.
President Biden — desperate to see relief for American drivers ahead of midterm elections — has made a detour to Saudi Arabia and is expected this month to visit the Kingdom, which he said on the campaign trail would be treated as a “pariah.” situation during his presidency. But US gas prices at $5 a gallon and the loss of some of the Russian supply made President Biden reconsider and meet with Crown Prince Mohammed bin Salman.
Saudi Arabia has publicly reiterated its “warm” ties with Russia on several occasions since Putin invaded Ukraine and sees keeping Russia in the OPEC+ alliance as an important part of its oil policy. With Russia leading a dozen non-OPEC producers in the pact, Saudi Arabia has more influence in global oil markets with the larger OPEC+ group than with OPEC alone.
Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman have discussed their countries’ cooperation in the OPEC+ oil production pact in a handful of phone calls since February and have pledged to continue their cooperation.
Last month, Russian Deputy Prime Minister Alexander Novak said Russia could continue its participation in the OPEC+ deal even after it officially expires at the end of this year. Novak spoke after meeting in St. Petersburg with Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, who made a surprise appearance at a Russian economic forum.
During that meeting, the Saudi minister said Saudi-Russian relations were “as warm as the weather in Riyadh.”
Two weeks before this meeting, Russian Foreign Minister Sergei Lavrov visited Riyadh and met with his Saudi counterpart Prince Faisal bin Farhan Al Saud. The two ministers said that the OPEC+ alliance is stable, with the level of cooperation within it strong.
OPEC+’s recent decision to accelerate production growth and withdraw all cuts in August, a month earlier than originally planned, was pushed by Saudi Arabia amid pressure from the US. However, the Kingdom first had to check with Russia before proposing to redistribute the September increase to July and August, sources with knowledge of the behind-the-scenes diplomacy told Reuters.
Both the Saudis and Russia benefit from the OPEC+ deal, so Riyadh wants to keep Russia on board, the sources say.
“The Saudis enjoy high prices while the Russians need guaranteed support from OPEC+ under the current circumstances,” a source familiar with Russian thinking told Reuters.
“Nobody cares about a market crash,” the source added.
After the full suspension of production cuts next month, a tougher decision for OPEC+ looms: what to do next as Russia is more than 1 million bpd behind target and could lose more supply as its embargo EU on oil starts at the end of This year.
Neither OPEC+ as a group is close to meeting its target output, nor does Saudi Arabia have much spare capacity left to boost output further, as the US and other big consumers want. According to the OPEC+ deal, Saudi Arabia’s (as well as Russia’s) target is 11.004 million bpd for August. The Kingdom rarely reached this level, and not for an extended period of time. Thus, it is not certain that the Saudis have the capacity to pump 11 million bpd or more on a sustainable basis. It is even less certain that the Kingdom can rapidly tap — if it wanted to — the 12.2 million bpd production capacity it claims to have.
By Tsvetana Paraskova for Oilprice.com
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