November 25 , 2017 – Fort Russ News –
For over half a century, Saudi Arabian oil ministers have been able to create market movements, saying only a few words about what the OPEC decision might be at its next meeting – bringing insiders millions, if not billions of dollars in profits.
Now the situation has changed. OPEC meetings still affect prices, but it’s not about the influence of Saudi Arabia, but about the influence of a country that is not part of OPEC: Russia, and, more specifically, Vladimir Putin.
Since the Russian agreement was reached with OPEC to reduce supplies last year, Putin became the most influential player in the group, Bloomberg writes.
As one high-ranking official of OPEC said, the Russian leader now “gives all orders.”
The Kremlin’s growing influence in the cartel reflects foreign policy aimed at countering American influence around the world through a wide range of economic, diplomatic, military and intelligence measures.
This strategy, backed by the enormous wealth of Russia’s natural resources, seems to be working.
“Putin is now the energy master of the world,” said Helima Croft, head of product strategy at RBC Capital Markets LLC in New York.
The power of Putin’s influence will remain at the center of attention on November 30, when 14 OPEC members, including Iran, Iraq, Nigeria and Venezuela, as well as non-OPEC countries such as Russia and Mexico, will meet in Vienna to discuss the extension of the supplies reduction in March.
At stake is the economic and political health of all involved states, including Kazakhstan and Azerbaijan, the two former Soviet republics that Putin also introduced into this deal. The agreement participants produce 60% of the world’s oil.
Putin provoked a brief spike in prices on the eve of the first visit of the King of Saudi Arabia to Russia last month, suggesting an extension of the cuts by the end of next year, although he stressed that he had not made a final decision.
Putin’s remarks led to a new flow of diplomatic efforts, both from the OPEC countries, and from non-OPEC countries, aimed at trying to conclude a deal.
Of course, this is not an easy alliance. Saudi Arabia, the world’s largest exporter, already dissatisfied with the fact that it bears the brunt of cuts, complains that the producer allies do not fully comply with the terms of the agreement. They are also frustrated by Russia’s restraint in extending the agreement.
Since the comments of Putin, the Kremlin has sent mixed signals, in part to appease Russian oil barons, such as Rosneft CEO Igor Sechin and billionaire, the head of Lukoil, Vagit Alekperov.
However, there are still attempts to prevent oil prices from rising, which could cause shale companies to increase production in the US, where production is projected to reach a record 10 million barrels a day next year, a level that will exceed Saudi Arabia and Russia.
For Putin, who entered into an unprecedented alliance with OPEC, when prices were $ 20 lower than today, there is another reason not to seek a sharp rise in oil prices.
At present, Russia has a weaker ruble, which benefits exporters and becomes less dependent on sales of energy products to meet its expenditure obligations.
For Russian manufacturers, cuts are becoming more painful. Although Brent is trading at around $ 63 per barrel, almost 30% higher than a year ago, they are forced to start reducing production.
“There are three scenarios that we are considering: OPEC will prolong the reduction by the end of the year, until next March or until the end of 2018,” said Erik Liron, Rosneft’s first vice president.
Nevertheless, current prices – and geopolitical realities – suggest that the agreement will be changed, according to Edward Chow, an employee of the Center for Strategic and International Studies in Washington and former head of Chevron Corp.
“This is mutually beneficial. The Saudis need a large oil-producing partner to effectively influence the market, and the potential of Russia’s more impressive geopolitical and economic role in the Middle East makes measures to reduce production an expedient step for Moscow, ” he said.
Saudi Energy Minister Khalid Al-Falih said he would like to announce by next week, in regard to the extension of cuts by the end of 2018, while Russian officials said they would want to wait and make a decision in March.
It is when, as anticipated, President Putin is polling to win the presidential election. The most likely result of the meeting in Vienna is a compromise between the two sides.
For Saudi Arabia, the need to share the extraction decisions with Russia, an ally of Iran’s enemy in the Syrian civil war, is a bitter pill.
In the past, the Saudis could impose their will on prices and punish rivals, oversaturating the market, as they did against other OPEC members in 1985-86, Venezuela in 1998-1999 and the shale oil industry in 2014-15.
But now the economy of Saudi Arabia is going through shocks, the Kingdom needs higher oil prices. On some parameters, given the breakeven point, Saudi Arabia needs higher prices than Iran or Russia, which when calculating its budget for the next year, counts oil prices at $ 40 per barrel.
The actions of Crown Prince Mohammed bin Salman aimed at combating corruption, including the sudden arrests of dozens of princes and billionaires, seem to have only strengthened the newfound dependence of the kingdom on Russia. “The cleaning-out has turned upside down a multi-year model that united the elite and drew the success of its ambitious economic reform program into a battle for survival,” states Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London.
“Against the backdrop of this vulnerability, we believe that the kingdom, and more importantly, Mohammed bin Salman, need high oil revenues and therefore high oil prices, which will allow him to remain in power,” Sen says.
Inessa Sinchougova is an Editor and Journalist at Fort Russ News, as well as a research fellow and translator of the Belgrade based think-tank, the Center for Syncretic Studies. She was educated at Victoria University of Wellington (New Zealand), in the field of Political Science and was previously employed in Marketing and Communications Strategy for a Multi-National Corporation. She runs a popular YouTube channel for translations of key Russian Foreign Policy figures and appears regularly on other alternative media channels.