Putin hosts Saudi king with oil topping agenda

Meeting ‘breathed life back into OPEC’

MOSCOW • President Vladimir Putin held talks with Saudi King Salman bin Abdulaziz, who’s making a historic first visit to Russia by a monarch of the Gulf kingdom as the two energy superpowers seek agreement on whether to extend a deal curbing oil supplies.

The Kremlin summit is a “landmark event” that will give a “good impetus” to bilateral relations, Putin told King Salman on Thursday. The king said that Saudi Arabia wanted to continue cooperation with Russia in order to maintain stability on the world oil market.

The Saudi courtship of Russia reflects a convergence of interests between the world’s two largest oil exporters as the output pact between the Organization of Petroleum Exporting Countries and non-OPEC producers has spurred a recovery in crude prices. King Salman’s journey to Moscow, ahead of planned talks with President Donald Trump in Washington early next year, is also a recognition by Riyadh of the changing political balance in the Middle East after Putin successfully countered indecisive U.S. efforts to topple Syrian leader Bashar al-Assad.

“Is there really anything in the world that’s absolutely permanent?” Putin told an energy forum in Moscow on Wednesday, in response to a question about whether Saudi Arabia will always align with the U.S. on geopolitical issues. “It seems to me, on the contrary, that everything’s changing.”

King Salman, who arrived for the four-day state visit late Wednesday, called Russia a “friendly” country. He told Putin, who accepted the king’s invitation to visit Saudi Arabia, that their talks will boost the global economy as well as aid international stability and security.

Putin said Wednesday that Russia may agree to extend the oil-supply agreement with OPEC to the end of 2018, though he’ll wait to make a decision until nearer the expiration of the existing pact in March.

Saudi Arabia will secure Russian backing to prolong the oil agreement that took effect in January, “but the Kremlin will insist that the deal include some form of tapering,” Eurasia Group analysts including Ayham Kamel, Middle East and North Africa practice head, said in an emailed note. The visit “will lay the foundation for strategic cooperation that transcends energy issues, though the Saudis have no intention of abandoning their deep partnership with the U.S.”

Cooperation between Russia and Saudi Arabia “breathed life back into OPEC” and made his country more optimistic about the outlook for oil than it has been for several years, Saudi Energy Minister Khalid AlFalih said after meeting with his Russian counterpart Alexander Novak on Thursday. The “success of this collaboration is clear,” he said.

King Salman is visiting as Saudi Arabia looks to deepen energy ties with Russia by inking deals to acquire oil and gas assets. Sibur Holding PJSC signed an agreement on joint oil-refining projects with Saudi Arabian Oil Co., known as Saudi Aramco. Other deals may involve Saudi participation in an Arctic LNG project led by Novatek and investment into Eurasia Drilling Co., Russia’s largest oil drilling contractor.

Saudi pledges of large investments in Russia “have disappointed in the past,” and just $1 billion has materialized out of a planned $10 billion partnership with the Russian Direct Investment Fund in 2015, according to Eurasia Group.

The head of Russia’s staterun oil giant Rosneft, Igor Sechin, said last month that there’ll be pressure for OPEC and its partners to extend production cuts if Saudi Arabia proceeds with an initial public offering of a stake in Saudi Aramco. About 5 per cent of the Saudi state oil producer will be offered in an IPO next year that could value the company at more than $1 trillion, depending on the oil market.

“The Saudis will be looking for a solid commitment from President Putin to stick with the production deal with OPEC,” said Chris Weafer, a partner at Macro Advisory in Moscow. “That is Riyadh’s best hope for keeping the price of Brent in the mid $50s, if not getting it above $60 in time to support the kingdom’s ambitious valuation target for Aramco.”

The unlikely partnership between Moscow and Riyadh marks a sharp turnaround from Soviet times. Saudi Arabia cut off relations with the atheist Communist state in 1938, only restoring them after the Soviet collapse. Together with the CIA, the Saudis also armed mujahedeen fighters who ended the Soviet Red Army’s 10-year occupation of Afghanistan.

Still, tensions remain over Syria, where Saudi Arabia is pressing Russia to rein in Iran, which the kingdom regards as its chief rival in the region, following the defeat of rebels backed by Riyadh in the war against Assad. In a “landmark” meeting, Saudi Arabia’s King Salman bin Abdulaziz and Russian President Vladimir Putin seek consensus on whether to extend a deal curbing oil supplies.