ANALYSIS - Saudi Arabia losing the oil war; might lose its only Western ally too

The writer is an international relations analyst and political adviser

ISTANBUL

During the last few years, Russia and Saudi Arabia have intensified their reconciliation efforts in an unprecedented way. Crown Prince Muhammad bin Salman (MBS) visited Russia in May 2017, paving the way for King Salman to meet Putin in Moscow in October the same year. The visit, the first ever by a sitting Saudi monarch to Russia, was hailed as historic in the Russian and Saudi media. Moscow rolled out the red carpet for King Salman and many experts were hopeful that the visit would open a historic new chapter in the relations between the two countries, as Riyadh had previously promised to invest billions of dollars in Russia, including $10 billion in Russia’s direct investment fund.

This perception gained traction later in November 2018 after the infamous high-five between the Saudi crown prince and Russian President Putin during the G-20 meeting amid the international isolation of MBS in relation to the slaughtering of journalist Jamal Khashoggi.

Putin’s visit to the Kingdom in October 2019 and the oil deal in December of the same year gave the impression that Saudi-Russia relations were at their best. Soon after that, however, the Russians came to realize that the Saudis promised a lot but delivered little. The holy oil alliance between MBS and Putin which helped both sides improve their energy income and created a bond between the two men would soon blow holes in the Saudi-Russian alliance.

Since 2016, oil has constituted the core of the deepening Saudi–Russia relations. Riyadh and Moscow have been coordinating under the umbrella of OPEC+ to stabilize the oil market and keep the oil prices at beneficial levels. In December 2019, the Saudi oil minister envisioned that OPEC’s deal to curb oil production with non-OPEC allies, including Russia, would stand the test of time, and remain steadfast “until death do us apart”. Three months later, Riyadh and Moscow waged an oil war against each other resulting in the sharpest drop in oil prices in around two decades.

Last week, the two oil superpowers traded accusations regarding which side the responsibility of the current situation lies with. Russia’s President Putin accused Saudi Arabia of withdrawing from the OPEC+ deal and pushing the prices lower than $40 per barrel in order to destroy its shale oil competitors.

Saudi Arabia responded with two statements from Foreign Minister Faisal bin Farhan and Oil Minister Prince Abdul Aziz bin Salman, who both denied the Russian accusations, emphasizing that Moscow pulled out of the OPEC+ deal while the Kingdom and the other 22 countries were working to convince it to increase the cuts in the production.

The oil war came against the backdrop of the Saudi request for OPEC+ to apply deeper cuts equal to 1.5 million b/d amid the coronavirus pandemic. Russia did not agree to the request, and this resulted in the failure of the long-standing agreement between the two sides and the flooding of the oil market with Saudi oil, forcing Moscow to agree to the request under the pressure of the low prices. In such a situation, one may wonder why such a disagreement triggered an oil war between the two supposed best friends of the near past.

As Rosneft spokesperson Mikhail Leontiev put it, “If you always give in to partners, you are no longer partners. It’s called something else.” When the Saudis asked Russia to contribute to the new deeper cuts, Moscow calculated that Riyadh was doing the U.S. a favor at Russia’s expense because deeper cuts would complicate its position vis-à-vis several players when it came to market shares and would empower U.S. shale oil companies, bringing more benefits to them, again at the expense of Moscow.

That’s why when the Saudis decided to flood the market with oil, Russia did not seem to mind the Saudi game much.

The Saudis thought that they could come out of the oil war victorious because they could leverage an extra two million b/d compared to the Russian capacity of a few hundred thousand b/d. However, Russia knew that Riyadh could not use this leverage for a long time because the world storage capacity was about to reach its limit and when this happened, it would force Riyadh to scale back the production without being able to force Moscow to agree to its terms.

From the Russian perspective, when the Saudis decided to wage the oil war, they were shooting themselves in the foot and their American friends too. If they stopped the war at this point, then no harm in letting the KSA spill some oil and the U.S. shale companies lose profits and market shares. We will go back to square one, only with Russia in a better position than it originally was.

If the Saudis chose to negotiate, however, then Russia would push to include the U.S. in any expected cut in the oil production. Managing to do so would be a huge win for Moscow. Riyadh would have achieved nothing apart from hurting itself and its ally, ultimately helping Moscow reach its goals.

But, if the Saudis chose to continue the oil war, many oil-producing countries would be upset with Riyadh because they were not as big producers as it is and they don’t have much foreign currency reserves to offset the huge difference in prices. Moreover, the oil war would not only kill the U.S. shale oil industry but also threaten Donald Trump’s chances of re-election as U.S. president. This means that the Russians could sit back and enjoy watching Saudi Arabia destroy its relations with the U.S. and lose its only ally in the West.

In other words, the Saudi gamble put Moscow in a better position not only vis-à-vis the U.S. but also with regards to the Saudi-Russian relations. Since 2017 the Saudis have been trying to utilize their relations with Russia as a hedge against the unpredictability of the U.S. administration; after the oil war, however, they are risking losing both.

After the last meeting of OPEC and the extraordinary meeting of G20 energy ministers on April 10, things are indicating that we are heading towards the second scenario. However, Mexico refused to cut 400 thousand b/d, which takes us to the third scenario. A number of Republican senators in the U.S. responded by threatening Saudi Arabia that “Washington will cut military aid if the Kingdom doesn’t pare its output, and end the price war”. Some others, such as Senator Kevin Cramer, said “Saudi Arabia’s next steps will determine whether our strategic partnership is salvageable.” But Senator Ted Cruz went even further by threatening the Kingdom: “If you want to behave like our enemy, we’ll treat you like our enemy.”

On another level, the impact of the oil war on Saudi foreign policy is obvious. Feeling the pain of the low oil prices and the high costs of their regional adventures, the Saudis seem to be constrained now more than ever. Their priorities are shifting, and because of the pandemic and the oil war, they need to inject a lot of money in the domestic arena. Last week, Riyadh decided to announce a unilateral ceasefire in Yemen.

If Saudi Arabia continues to challenge Russia, Moscow can complicate its already complicated situation with Iran, Syria, and Libya, and even in Yemen.

* Opinions expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Anadolu Agency.