Western gripe with Saudi Arabia is making Russia a closer ally
The reticence of western companies to attend an investment conference in Riyadh this week in the wake of the killing of Saudi journalist Jamal Khashoggi is improving relations between Saudi Arabia and Russia.
The kingdom will not penalise western banks who withdrew their senior executives from attending the three-day Future Investment Initiative held in Riyadh and opted to send lower tier representatives with the aim of preserving business ties with the country, said Saudi Arabian Monetary Authority’s governor Ahmed Al Kholifey.
It was telling that on the eve of the event, Saudi Arabia’s Minister of Energy Khalid Al Falih gave an interview to Russia’s state-run news agency TASS, in which he said the kingdom does not plan to impose an embargo similar to a previous one in 1973, and is concerned about limited spare oil capacity to cope with disruptions.
“The evolution of the relationship was really only brought about in the initial meeting between Crown Prince Mohammed bin Salman and Vladimir Putin,” said Theodore Karasik, senior advisor at consultancy Gulf State Analytics in Washington. “These two leaders have an affinity for each other that emphasises the future trajectory of the Russian-Saudi relationship. We are now seeing this relationship bloom because of the American reaction to the Khashoggi affair.”
The show of Russian executives at FII, including members of Russia’s sovereign wealth fund, the Russian Direct Investment Fund which said it “strongly supports transformative and historical reforms in Saudi Arabia” and will “continue close investment co-operation” with the kingdom exemplifies how relations between Moscow and Riyadh have warmed. This is happening despite being on opposite sides when it comes to dealing with the seven-year conflict in Syria and Iran.
The RDIF and the Public Investment Fund formed a partnership in 2015 under which Saudi Arabia’s fund agreed to invest $10 billion. The partnership covers areas including infrastructure and agriculture.
Even before Khashoggi’s death, Riyadh and Moscow, two of the world’s largest oil producers, had set aside their differences when it came to stabilising oil markets by agreeing on production cuts. That co-operation over that past two years helped push oil prices to above $80 a barrel after a three-year slump that saw oil prices drop to below $30 a barrel in the first quarter of 2016. The summit in Riyadh this week appears to build on closer ties. In what clearly is the latest show of co-operation to come out of the FII, Mr Al Falih said on Thursday Saudi Arabia is set to acquire 30 per cent of Russia’s liquefied natural gas project in the Arctic, as the world’s biggest oil exporter looks for alternative sources of gas.
The Arctic LNG project being developed by Novatek, Russia’s largest gas producer, is estimated to be worth $25.5bn and already has France’s Total as a partner with 10 per cent interest. The
scheme is the second such LNG project in the Arctic for Russia, which has signed several preliminary agreements with Japanese, Chinese as well as Saudi partners. Russia has the largest proven reserves of gas, accounting for 18.1 per cent of world total, according to the latest BP Statistical Review of World Energy.
For its part, RDIF has also said its keen on investing in the kingdom’s $500bn futuristic Neom project, LNG ventures and participating in Saudi Arabia’s privatisation plans, its chief executive said. “We are interested in [Neom] and we will be participating in that for sure in many ways,” said Kirill Dmitriev at the FII summit. “We believe LNG is certainly an area of co-operation between Saudi Arabia and Russia. And we will see some big announcements of projects in this area.”
The RDIF as part of its partnership with the kingdom is keen to solidify itself as a supplier of grain, Mr Dmitriev said.
RDIF, which is also a partner with Mubadala Investment Company in a $2 billion fund investing in Russia, could co-invest in Saudi Arabia with the Abu Dhabi strategic firm.
Times may be difficult but the kingdom has made clear it “knows who is supporting the advancement of Vision 2030 and specifically the growth of the PIF to its greatest advantage,” said Mr Karasik.
“That advantage means energy relationships and other forms of investment including joint ventures in a number of different fields that will boost the interactivity between both countries.”