Saudi Arabia denies contact with Russia over OPEC+ deal

Direct Investment Fund CEO Kirill Dmitriev has called for joint action by countries to ease turmoil in global energy markets. (AFP)
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Updated 28 March 2020

Saudi Arabia denies contact with Russia over OPEC+ deal

  • Kingdom rejects claims of expanded partnership to balance global market amid major fall in oil and gas demand

DUBAI: Saudi Arabia has denied it has had any contact with Russia’s Energy Ministry over the possibility of a new OPEC+ deal to rebalance global oil markets.

A statement from the Saudi Energy Ministry dismissed reports from Moscow that there had been discussions between Russia and the Kingdom aimed at resurrecting the OPEC+ alliance, and even bringing in new members.

“There have been no contacts between Saudi Arabia and Russian energy ministers over any increase in the number of OPEC+ countries, nor any discussion of a joint agreement to balance oil markets,” a ministry official said in a statement.

The denial followed quoted comments in the Russian and international media by Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), to the effect that a new arrange- ment was desirable in light of turmoil in global energy markets

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Brent crude — the Middle East benchmark — traded at $24.41 per barrel on Friday, compared with a 12-month high of $75 per barrel.

Since the OPEC+ partnership led by Saudi Arabia and Russia fell apart in Vienna earlier this month, energy volatility has been exacerbated by the accelerating coronavirus outbreak and a big drop in global demand for oil and gas.

“Joint actions by countries are needed to restore the global economy. They are also possible in the OPEC+ deal framework,” Dmitriev told Reuters. He declined to identify which countries he thought should get involved in any new OPEC deal. Dmitriev, whose RDIF wealth fund is a significant invest- ment partner of Saudi Arabia, was a member of the team led by Russian Energy Minister Alexander Novak that took part in the OPEC+ negotiations.

A Russian official who did not want to be named told Arab News that Dmitriev was speaking with the knowledge of the energy ministry and of Russian President Vladimir Putin.

“We are in contact with Saudi Arabia and a number of other countries. Based on these contacts we see that if the number of OPEC+countries will in crease and other countries will join, there is a possibility of a joint agreement to balance oil markets,” Dmitriev said.

Conditions in global energy markets have changed significantly since Saudi Arabia and Russia failed to agree bigger cuts to oil supply earlier this month. 

The Kingdom responded with deep discounts to its oil products for international customers and a surge in supply to more than 12 million barrels per day from next month.

Since then, oil demand has fallen faster than at any time in history, with some experts predicting a decline of around 20 percent from the roughly 100 million barrels per day consumed in normal economic conditions.

At the same time, the oil price has also dropped. On Friday, Brent crude, the Middle East benchmark, was down by 7.33 percent from the previous day, at $24.41 a barrel, compared with a 12-month high of $75 per barrel.

Lower oil prices are especially worrying for the American shale industry, which has much higher production and finance costs than either Saudi Arabia or Russia.

A group of American senators has written to US Secretary of State Mike Pompeo urging him to ask Saudi Arabia to change its current high-output, low-price policy. “Our nation’s energy dominance, which President Trump has carefully nurtured over the past three years, is now under threat,” the lawmakers said.

The energy industry did not feature in the “virtual” summit of the G20 group of nations organized by the Saudi Arabian presidency last Thursday, but before the meeting Pompeo asked Crown Prince Mohammed bin Salman to “reassure global energy and financial markets.”


Pakistan seeks Arab creditors, China to convert $7.7 bn into long term loans — Hafeez Shaikh

Updated 02 June 2020

Pakistan seeks Arab creditors, China to convert $7.7 bn into long term loans — Hafeez Shaikh

  • Pakistan received $3 billion BoP support from Saudi Arabia, $2 billion from the UAE and $2.2 from China
  • Conversion of short term deposit will provide long term financial stability to the country, say experts

KARACHI: Pakistan is in talks with Saudi Arabia, the United Arab Emirates and China to extend the tenure of their $7.7 billion short term deposits, a move that will ensure long term forex stability of the South Asian nation, Dr. Abdul Hafeez Shaikh, the prime minister’s adviser on finance and revenue, told Arab News in an exclusive interview.
“Last year, when Pakistan was going through the worst balance of payment (BoP) crisis in our history, we were provided financial support by our brotherly countries,” Shaikh said on Monday.
Pakistan’s friendly countries were approached by the government of Prime Minister Imran Khan soon after assuming the office in 2018 as the country’s current account deficit reached $20 billion.
Responding to Pakistan’s call, Saudi Arabia deposited $3 billion while the UAE and China deposited $2 billion and $2.2 billion, respectively. Qatar also contributed by depositing $0.5 billion with Pakistan’s central bank.
“The $7.7 billion secured from the bilateral arrangements provided the much needed balance of payment support to Pakistan,” he added.
“These are short term deposits placed with the central bank in Pakistan at concessional rates,” the PM’s adviser said, adding: “We are in talks with our development partners to move these deposits toward longer tenors.”
Economists say these deposits provided a lifeline to the country’s economy that had higher imports and lower exports.
“The balance of payment support oxygenated the country’s economy that was much need for its survival. The support helped Pakistan not to default on its foreign payment obligations,” Muzzamil Aslam, senior economist, who is familiar with the developments, told Arab News.
Pakistan’s current account deficit (CAD) was $20 billion in 2018 which declined to $13.43 billion during the last fiscal year. Its further decline is also projected for the current fiscal year (2019-20).
“CAD is projected to decline to $4b [or 1.7 percent of the GDP] in the current fiscal year, compared to $20b when the government took office in 2018,” Shaikh said.
The major balance of payment support came from Saudi Arabia which provided $6 billion in financial assistance to Pakistan, with $3 billion in foreign currency support and $3 billion worth of oil on deferred payments. The agreement was signed during the visit of Prime Minister Imran Khan to the Kingdom in October 2018.
Economists say when Pakistan approached the International Monetary Fund (IMF) for the bailout program, the United States had expressed concerns that the money could be used to pay off debts, especially those taken from China.
“After we started getting the IMF assistance, the fund imposed a condition during the first review of the program to roll over these loans instead of paying them back. This was because the US had misgivings that Pakistan will pay the Chinese debt with the IMF money,” Aslam said.
However, the IMF acknowledged in April that “Bilateral creditors have maintained their exposure in line with debt sustainability objectives of the EFF [Extended Fund Facility].”
China maintained their exposure by renewing $2 billion bilateral deposits in March. Saudi Arabia also refinanced $3 billion BoP support loans that matured in November-January, while the UAE rolled over $1 billion BoP support loans in March. The oil facility with Saudi Arabia – worth $3.2 billion – was activated in August 2019 and has also been providing support to the balance of payments, according to the IMF documents.
Instead of frequent rollovers now, the government wants to convert these short term deposits into long tenors. “The IMF is behind this strategy,” Aslam informed. “The conversion will impact the status of these deposits in a way that loan rates will be decided in line with the international benchmark which may be LIBOR+2-3 percent.”
Economists say the conversion of these deposits will positively impact the economy of the country since Pakistan will get some breathing space and an opportunity to improve its overall financial condition. “It will provide long term forex stability. Otherwise, we will be under pressure to pay back $7.7 billion,” Aslam said.