Hardly 10 months after honoring the visiting US president, the Saudis are open to a Russian-Chinese consortium investing in the upcoming Aramco IPO
In the slideshow that is Middle Eastern politics, the series of still images seldom add up to make an enduring narrative. And the probability is high that when an indelible image appears, it might go unnoticed – such as Russia and Saudi Arabia wrapping up huge energy deals on Wednesday underscoring a new narrative in regional and international security.
The ebb and flow of events in Syria – Turkey’s campaign in Afrin and its threat to administer an “Ottoman slap” to the United States, and the shooting down of an Israeli F-16 jet – hogged the attention. But something of far greater importance was unfolding in Riyadh, as Saudi and Russian officials met to seal major deals marking a historic challenge to the US dominance in the Persian Gulf region.
The big news is the Russian offer to the Saudi authorities to invest directly in the upcoming Aramco initial public offering – and the Saudis acknowledging the offer. Even bigger news, surely, is that Moscow is putting together a Russian-Chinese consortium of joint investment funds plus several major Russian banks to be part of the Aramco IPO.
Yet the Aramco IPO was a prime motive for US President Donald Trump to choose Saudi Arabia for his first foreign trip. The Saudi hosts extended the ultimate honor to Trump – a ceremonial sword dance outside the Murabba Palace in Riyadh. Hardly 10 months later, they are open to a Russian-Chinese consortium investing in the Aramco IPO.
Riyadh plans to sell 5% of Saudi Aramco in what is billed as the largest IPO in world history. In the Saudi estimation, Aramco is worth US$2 trillion; a 5% stake sale could fetch as much as $100 billion. The IPO is a crucial segment of Vision 2030, Saudi Crown Prince Mohammad bin Salman’s ambitious plan to diversify the kingdom’s economy.
Aramco signs MoU with Novatek
Also on Wednesday, Saudi Aramco signed a memorandum of understanding with Novatek, Russia’s largest non-state natural-gas producer, regarding Saudi investment in the latter’s LNG (liquefied natural gas) projects – specifically, in the $20 billion Arctic LNG-2, which is expected to be on stream in 2023 and has a capacity of 18 million metric tons annually.
Saudi Minister of Energy, Industry and Mineral Resources Khalid Al-Falih told the media in Riyadh, “This is a big project. It will become part of Aramco’s gas strategy.” The agreement will be showcased as the centerpiece of the St Petersburg International Economic Forum in May. (Novatek is also interested in building a regasification terminal in Saudi Arabia.)
Other Saudi-Russian energy deals in the making include investment by Aramco and the Saudi sovereign wealth fund (Public Investment Fund, or PIF) in the Russian company Eurasia Driller, a major independent driller, which has been seeking entry to onshore and offshore projects in Saudi Arabia. The Saudi and Russian officials also disclosed that Russia had made a formal proposal to build two nuclear reactors in Saudi Arabia and that the contract was expected to be awarded by next year.
Indeed, these deals must be seen in the backdrop of the Saudi-Russian alliance to sustain the oil price through production cuts until the end of 2018. In 2015, the Russian Direct Investment Fund and Saudi Arabia’s PIF joined hands to make investments in projects in Russia. Last year, RDIF and PIF announced the creation of a Russia-Saudi Investment Fund with total committed capital of $6 billion to pursue investment opportunities, primarily in Russia, and in joint ventures that can help Saudi Arabia’s economic diversification.
Historically, Saudi Arabia has been seen as a pivotal country in the United States’ Middle East energy strategies, which formed a core template of Cold War-era politics to keep the former Soviet Union out of the region. The past week’s developments signify that the tectonic plates are shifting.
And history might repeat. Reminiscent of the so-called Quincy Agreement of February 1945 between US president Franklin Roosevelt and King Abdul-Rahman bin Abdulaziz, founder of Saudi Arabia, the emerging Saudi-Russian energy alliance will most certainly trigger an overall expansion of relations between Russia and Saudi Arabia, including in defense and security fields.
Russian President Vladimir Putin telephoned King Salman bin Abdulaziz Al Saud on Wednesday, when they discussed “a wide range of bilateral cooperation, primarily in trade and defense technology” and “expressed readiness to boost meaningful coordination in global hydrocarbon markets,” according to Moscow. The Kremlin readout highlighted that Putin and King Salman discussed Syria and Saudi Arabia’s standoff with Qatar – and, possibly, Iran too.
Interestingly, the Kremlin statement cited Putin as regretting that “the current crisis by no means contributed to the consolidation of joint efforts in the struggle against a terrorist threat or the stabilization of the Middle East in general.” Indeed, it cannot be lost on the Saudis that what distinguishes Russian diplomacy is that unlike the traditional US tactic of exploiting regional tensions and divisions, Moscow focuses on beneficial cooperation. Quite obviously, the Russian military bases in Syria or Russia’s axis with Iran do not impede a full-bodied Saudi-Russian strategic relationship.
Suffice to say, Russia is positioning itself, in geopolitical terms, to shape outcomes in the Middle East and to enhance its standing as a great power, while also advancing its economic, political and security interests. The contrast with the US couldn’t be sharper.
Radio Free Europe/Radio Liberty reported last week that while addressing a closed-door meeting of the Russian Union of Industrialists and Entrepreneurs, a prominent group of industrialists and business tycoons, in Moscow on February 9, Putin predicted that “those who are doing this [imposing sanctions] will themselves tire of it soon.” The news from Riyadh signals that Putin’s prediction is well grounded.
When Russia teams up with China and Saudi Arabia in making such massive investments in the energy field, the US sanctions aimed at denying Western capital and technology to stymie Russia’s oil industry have been rendered meaningless.