Opinion

Saudi Arabia and Russia: A growing business partnership

Saudi Arabia and Russia: A growing business partnership

Author

Anybody who watched the body language at the recent Russian Energy Week forum in Moscow could be left in little doubt: The Russian Federation and Saudi Arabia feel an increasing spirit of commonality of interest in strategic, energy and economic ties that is being cemented by the visit of President Vladimir Putin to Riyadh.

It was there in the obviously good relations between the two countries’ energy ministers, Abdul Aziz bin Salman and Alexander Novak; it was present too in the enthusiasm with which the Russian Direct Investment Fund’s chief executive, Kirill Dmitriev, spoke about the joint financial investments involving his organization and the Kingdom’s Public Investment Fund.

It was also there in the painstaking preparations in the Saudi capital for the presidential visit.

The increasingly cordial entente between Russia and Saudi Arabia was born out of the hard economics of the energy world.

As the US began to fully exploit its shale reserves, the other two big producers found an identity of interest in the needs to counterbalance the new crude power of the Americans.

The volatility of the oil price since the global financial crisis demonstrated the need for preventive action.

The main reason for the regular falls, followed by only partial recovery, was that the world was awash with crude as American shale production took off.

Inventories were full, but it was not in the Americans’ interests to call a slowdown to production. They were grabbing significant market share and on their way to becoming energy self-sufficient for the first time in decades.

Both Russia and Saudi Arabia were in a difficult position. The economies of the two countries are far more reliant on energy revenue as the generator of growth than the more diversified American economy.

Diversification became a mantra for Russia as much as it did for Saudi Arabia, but the key to that was to maintain crude prices as high as possible to bridge the gap until the non-oil sector could make up ground.

To do that, the glut in global inventories had to be drained. The result was the historic decision to form what was termed then the “Vienna Alliance” but which has since been dubbed Opec +.

Russia, not a member of Opec, agreed to production cuts alongside Saudi Arabia, and agreed supervision and policing methods — not always fully observed by other oil producers — to make the cuts meaningful.

Both sides agree that the measures have helped to prevent the wild swings in price of previous years, and are draining the inventories. Some oil experts believe Russia and Saudi Arabia could go further still by institutionalizing the arrangement in a new super-Opec.

The two partners learned a lot about each other during the Vienna negotiations, and that encouraged them to look beyond the global oil market.

The new Saudi-Russian business partnership is not just about energy. In the same year as the the Vienna deal, the RDIF and PIF set up the Russia Saudi Investment Fund, with $10 billion of capital, to channel investments into infrastructure and other big projects in each others’ countries.

Priority sectors were food and agriculture, consumer, health care, pharmaceuticals, technology and infrastructure. Some $2.7 billion of that has been invested, RDIF’s Dmitriev said at the Moscow event, hinting that there were some bid deals around the corner.

One transaction that will likely be clinched during the Riyadh visit is a big investment by Saudi Aramco, in a consortium including RDIF and PIF, in the leading Russian oil-pumps manufacturer, Novomet. Further deals are expected in petrochemicals and agricultural goods and other sectors while Putin is in Saudi Arabia.

The investment process will be a two-way street, with Saudi cash going into big projects in the country, such as a new ring road around congested Moscow, and Russian infrastructure and transport skills being deployed in the Kingdom to build bridges and, possibly, railways.

The Russians, big grain exporters, are also eyeing opportunities in agricultural products, the Kingdom having relaxed some of its import restrictions recently.

It is a measure of the high regard in which the RDIF connection is held that Dmitriev was recently honored by being made a member of the Order of King Abdul Aziz by Crown Prince Mohammed bin Salman, only the second Russian to receive the Kingdom’s highest award.

The first Russian recipient was President Putin himself.

 

• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai

 

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

Russia’s energy minister says cooperation with Saudi Arabia ‘can bring tangible benefits for both sides’

Russian Minister of Energy Alexander Novak believes Saudi-Russian relations are built on more than just oil.
Updated 14 October 2019

Russia’s energy minister says cooperation with Saudi Arabia ‘can bring tangible benefits for both sides’

  • Russia’s energy minister sees working with Kingdom on oil and gas as the first step toward a ‘new alliance’

MOSCOW: Alexander Novak, Russia’s energy minister since 2012, has overseen the country’s oil and gas industry at a time of great geopolitical and economic change. On the occasion of the visit of President Vladimir Putin to Saudi Arabia, Novak tells Arab News why the Saudi-Russia relationship is about more than just oil — and how the “black swans” will continue to affect the global oil price.

Q: Russia and Saudi Arabia have become much closer in all spheres of activity in recent years. Why is this?

Novak: The expansion of interaction with our Saudi partners along the entire chain of cooperation for us, in essence, is the creation of a new alliance in order to maintain our competitiveness in world markets and to develop the national and world energy in general.

This, in my opinion, is a completely legitimate response towards the current challenges of globalization, which are dictated by the prevailing geopolitical terrain.

Of course, Russian-Saudi cooperation in the past has gone far beyond the frame of energy cooperation intended to stabilize the oil market.

We have taken a pathway towards a consistent increase in the pace of Russian-Saudi trade and economic partnership.

We are engaged in an active dialogue in all sectors of trade and economic cooperation, including agriculture, industry, investment and energy sectors.

As you may know, on June 10 the 6th meeting of the Russian-Saudi Intergovernmental Commission was held in Moscow, as a result of which we noted a significant increase in our cooperation and outlined its new directions and priorities.

From January to June 2019, Russian-Saudi trade turnover increased 28 percent compared to the same period in 2018, reaching $637.7 million.

Q: In energy, what are the common areas of interest?

Novak: Investment cooperation is one of the key growth points for our economic relations. About $2 billion worth of investments have already been made in joint projects in Russia. In this case, we see energy as one of the most promising areas of collaboration.

We have many points of intersection; a number of Russian companies wish to work with Saudi counterparts on the supply and maintenance of oil and gas equipment.

We are conducting preparatory work to develop new breakthrough technologies that will allow us to adapt oil to the current climate and environmental agenda.

In addition, bilateral and international cooperation is important to stabilizing the oil market under the OPEC+ Agreement.

Thanks to our regular meetings, policy coordination between OPEC members and other parties of the Vienna deal is proving successful.

It is important that the practice of such confidential contacts gives appropriate signals to all participants in the oil market, who must be convinced that our commitment to maintaining balance remains unwavering, and we continue to keep abreast of, and monitor, fluctuations in the oil market, preventing its imbalance.

The development of cooperation in the field of raw energy is a good basis for cooperation in other areas.

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Q: Saudi Arabia and Russia have been the leaders of the Opec + alliance that seeks to regulate oil output. Are their interests identical in this project?

Novak: Any union is built on mutual understanding and mutual trust. The OPEC + format is not an exception.

The results achieved are key to the long and painstaking work of its participants, including the cohesion of interests and the search for compromises.

Judge for yourself: At the last OPEC/non-OPEC ministerial meeting, we managed not only to extend the agreements in the framework of the Declaration on Cooperation, but also to switch to a new format of cooperation by signing the Charter for Cooperation of Oil-producing Countries.

This document will serve not only to improve understanding and trust among OPEC and non-OPEC countries. It will also become a basis for joint work on the development of new technologies to adapt oil to the modern climate and environmental agenda, requirements for ensuring global energy security and the implementation of the UN Sustainable Development Goals.

Q: What do you think is a fair price for oil in the global market these days?

Novak: Despite isolated cases of force majeure in the oil market this year, the situation is stable and is under the control of the countries participating in the market.

At the same time, we understand that due to the ongoing pressure on the market of “black swans,” such as trade wars, commodity prices may change in one direction or another.

Q: Not so long ago, Saudi Arabia’s oil facilities were brutally attacked. How do you think this affected the country’s oil sector? What needs to be done in order to stop such attacks in the future?

Novak: Situations such as an attack on facilities in Saudi Arabia lead us to the need to constantly conduct safety assessments at fuel and energy facilities around the world, especially in the Middle East.

Such attacks on large oil suppliers pose risks to global energy security.

What happened clearly showed how quickly the situation on the market can change; at that moment, 5-6 percent of world production left the market and prices jumped by 20 per cent, which is a record increase for at least 30 years.

At the same time, the market recovered in just a week.

I believe, provided that high security at the fuel and energy complex is ensured, and our actions are taken to stabilize the market situation within OPEC +, we will be able to further control the situation and quickly bring it back to normal.

Q: Do you see the basis for the development of gas cooperation between Saudi Arabia and Russia? What can the two countries learn from one another?

Novak: The interest in cooperation with Saudi companies is shown by many Russian oil and gas companies, such as Gazprom and Sibur.

We believe that when finding mutually interesting projects, our cooperation can develop along the entire value chain and can bring very tangible benefits for both sides.

For example, the energy strategy of Russia provides for a several-fold increase in the production of liquefied natural gas — as part of this strategy, our companies are implementing a number of projects that have great prospects in terms of the participation of foreign investors.

In addition, we strive for scientific cooperation — currently the possibility of creating a joint Russian-Saudi institute in the field of energy cooperation is being explored.

Q: What agreements can be expected from Vladimir Putin’s visit to the Kingdom?

Novak: As part of the work of the Joint Intergovernmental Russian-Saudi Commission on Trade, Economic, Scientific and Technical Cooperation, we have prepared a solid list of documents including in the energy field, agriculture, trade and other areas. In total, there are more than 30 documents. A high-level Russian-Saudi strategic cooperation program has been prepared based on the national development priorities of our states.

At the corporate level, I think our countries have already done a lot of work. At the moment within the framework of cooperation between the Russian Direct Investment Fund and the Kingdom of Saudi Arabia Public Investment Fund, investments have already been made in more than 30 projects from various sectors of the Russian economy, including energy, infrastructure, and technology worth over $2.5 billion.

Within the framework of the visit, we expect the signing of a number of agreements and memorandums for an additional $ 1 billion, a significant part of them is in the energy sector. I hope that the new agreements will become the basis for the subsequent strengthening of bilateral cooperation. In the course of painstaking work with the Saudi side, we managed to lay a solid foundation for further progressive development of relations. I am sure that with our partner, the Minister of Energy of the Kingdom of Saudi Arabia; Prince Abdulaziz bin Salman, we will make every effort to further develop Russian-Saudi cooperation.

 

Related


Saudi trade summit takes place in Riyadh

Updated 16 November 2019

Saudi trade summit takes place in Riyadh

  • The summit was founded in 2013 to bridge the gap between CFOs and financial institutions
  • The high-profile event provided a platform to bring together CEOs, presidents, chairmen, group CFOs, finance and treasury heads and thriving government agencies in the Kingdom

RIYADH: The 7th Annual Saudi Trade Finance (STF) Summit took place recently in Riyadh, with the slogan “Enabling the Kingdom’s vision for a better future.”
The high-profile event provided a platform to bring together CEOs, presidents, chairmen, group CFOs, finance and treasury heads and thriving government agencies in the Kingdom to open up thought-provoking panels on current trends, challenges and opportunities in the finance sector.
The summit was founded in 2013 to bridge the gap between CFOs and financial institutions, and this year the General Authority for Small and Medium Enterprises (Monshaat) organized, supported, developed and sponsored the small and medium enterprise (SME) sector.
Monshaat, as a supporting partner of STF, told Arab News: “The efforts of Monshaat in the finance sector is verified into four categories dedicated to small and medium enterprises: Recovery initiative, finance portal, bold investment, and indirect lending with a total budget of approximately SR11.4 billion ($3.039 billion) distributed among them.
“An example of one portal is the finance portal matrix, that brings together entrepreneurs and owners of SMEs looking for financing, allow them to choose appropriate financing and connect them to 20 financing bodies including banks, finance companies and investment companies.”
The STF Summit’s informative conference sessions and unparalleled networking opportunities this year have emphasized the diversification of the economy to empower financial institutions and corporates in achieving the Kingdom’s Vision 2030 Program through sustainable growth.