Riyadh turns to Moscow for a resolution

18 December 2013

Events in Syria have put the world’s two most powerful energy producers at loggerheads. But faced with deteriorating US relations, Saudi Arabia has been reaching out to Russia

The visit to Moscow by Saudi intelligence chief Prince Bandar bin Sultan bin Abdulaziz al-Saud in early December – the second high-level encounter with Russia’s President Vladimir Putin in the past six months – has brought fresh attention to the vexed relationship between the kingdom and Russia.

Events in Syria have put the world’s two most powerful energy producers at loggerheads. But as the Kremlin and the White House prepare for the Geneva II peace conference on Syria in late January, there is a growing sense among both Saudi and Russian decision-makers that simply ignoring each other is no longer a viable policy.

Diplomatic outreach

With Prince Bandar at the helm, Riyadh is promoting a diplomatic outreach to Moscow, despite the evident failure of previous efforts to enlist Russian cooperation to reduce regional tensions. Putin’s veto of UN Security Council action against the Al-Assad regime remains a major source of frustration for the Saudi leadership. But rather than sulk on the sidelines and further reduce the kingdom’s influence on the Geneva II process, Saudi policymakers have determined that engaging with Russia is a better tactic.

[Riyadh and Moscow] need to discuss what might happen after the collapse of the [Syrian] regime

Alexei Malashenko, Carnegie Moscow Centre

“Both Saudi Arabia and Russia think it is now the moment to improve their relations after their recent problems,” says Alexei Malashenko, co-chair of the Carnegie Moscow Centre’s religion, society and security programme. “Just because relations between the Saudis and the Americans are deteriorating doesn’t mean Saudi-Russian ties have to follow suit.”

In fact, Prince Bandar’s visit to Moscow shows Riyadh may want to compensate for the deterioration in US relations by improving its position with the Russians, says Malashenko.

The Saudi intelligence chief in particular has made it clear he sees value in persevering with diplomacy towards Russia, despite the latter’s obstinate stance on Syria.

Back in late July, the prince launched an even more ambitious strategy targeted at the Kremlin, with reports that he had offered to buy up to $15bn of Russian weapons, as well as ensuring that Gulf gas would not threaten Moscow’s position as a main gas supplier to Europe, in return for a scaling back of Russian support for the regime of Syria’s President Bashar al-Assad.

This followed a meeting at the end of July between Putin and Prince Bandar at which the prince reportedly suggested the two sides come up with a unified Russian-Saudi strategy on global oil supply and price. 

The prince’s recent burst of contacts with the Russian president reflects the kingdom’s dismay at US President Barack Obama’s approach to the Syria issue, as well as his dialogue with another regional rival, Iran.

“The latest meeting was largely a reaction to [Riyadh] being fed up with the US on the Syria issue specifically,” says Gregory Gause, a Saudi political analyst at the University of Vermont in the US. “[Prince] Bandar was mad at the US and went over to Moscow to see if there was a better deal to be had. But there is no indication they got anything from Putin on Syria.”

The Russians are keenly aware that their stance on Syria and Iran does not go down well in Gulf capitals. As Putin noted in a speech earlier this year, his country’s economic and political relations in the region have been negatively affected. “Russian companies are losing the position they had built over the decades in local markets,” he said.

This is in sharp contrast to the situation before the Arab Uprisings. Diplomatic ties were restored in 1990, when the then Soviet Union supported the UN Security Council resolution backing the use of force against Saddam Hussein’s Iraq, after its invasion of Kuwait. Despite their adversarial relationship during the Cold War period, Moscow and Riyadh had sought to reinforce commercial and political ties in spite of the former’s displeasure at alleged Saudi support for Islamist separatist groups in the restive region of Chechnya. This culminated in Putin’s historic visit to Riyadh in February 2007, four years after the then Crown Prince Abdullah bin Abdulaziz al-Saud had made the first ever high-level Saudi visit to the Russian capital.

Improving ties

Before the current regional unrest, aggravated tensions between Russia and the Sunni Arab states, Saudi-Russian relations were on the mend. By the late 2000s, Riyadh was giving support to Russia’s once-controversial Chechnya policy, with King Abdullah meeting the Moscow-approved Chechen leader Ramzam Davyrov in Mecca in August 2007. Saudi Arabia also supported Moscow’s accession to the World Trade Organisation, leading in 2008 to the signing of a military-technical cooperation agreement between the two countries.

In 2008, there were reports of Riyadh’s interest in buying Russian-made T-90S tanks and a number of helicopters, medium-range air-defence systems and armoured personnel carriers. Despite these efforts, Russia has not engineered significant sales of military equipment and has little to show for the diplomatic engagement, aside from an order for 40 helicopters in 2007 sealed at the Dubai Air Show.

There has been little investment on either side, apart from Russian oil giant Lukoil’s $500m investment in natural gas exploration in its portion of the Empty Quarter. According to official Russian government statistics, there is no Russian foreign direct investment (FDI) in the kingdom at present. 

Saudi Arabia’s investment track record in Russia is also patchy, with only isolated examples of successful FDI projects. In December 2009, Novaar Capital Management, a private investment office commissioned by members of the Saudi royal family, announced the creation of a joint venture with Russia’s state-owned Ural Industrial-Ural Polar to invest in the natural resource-rich Urals region.

Novaar said it would invest in designated infrastructure schemes across the Urals, with the initial focus on developing transport and power generation infrastructure in the region.

The kingdom’s growing food security requirements helped trigger another joint venture deal in December 2012, when the Saudi-owned Najd Trading & General Contracting signed an agreement with Siberian grain producer SAHP to ship Russian wheat and barley to the Middle East and North Africa.

Trade relations

The reality is that Russia, which attracted a massive $55bn in FDI in the first six months of 2013, has little immediate need for Saudi investment dollars. And despite its pariah status in large parts of the Arab world due to its support for Al-Assad and his regime, Putin has still been able to land some sizeable deals from other Gulf states.

An agreement signed this year between the state-run Russian Direct Investment Fund and Abu Dhabi-owned Mubadala Development Company to invest up to $5bn in Russian infrastructure suggests not all has gone sour for Moscow’s commercial relations in the region.

Trade ties between Russia and Saudi Arabia are not significant, with its share in total Saudi trade estimated at 0.2 per cent. Yet Russian exports to the kingdom are rising, reaching $1.1bn in 2012, according to trade statistics from the Washington-based IMF. In contrast, with little call for Saudi crude imports, the kingdom’s exports to Russia remain small, at just $270m in 2012, says the IMF.

Agriculture commodity exports such as barley and wheat are the mainstay of Russia’s exports to Saudi Arabia, along with a variety of metal products. In fact, the kingdom is the world’s largest buyer of Russian barley, importing about 2.5 million tonnes of grain in the 2011/12 crop year.

Russian contractors have enjoyed mixed success in the Saudi market, with some big-name contract wins. For example, in April 2007, Stroytransgaz, the construction unit of Gazprom, was awarded an engineering, procurement and construction deal by Saudi Aramco worth more than $100m for the construction of the Shbab 1 pipeline, a 200-kilometre pipeline linking the Shaybah oil field to the central processing facility at Aqbaiq.  

However, Lukoil’s experience on Block A in the Rub al-Khali natural gas development since 2004 has proved underwhelming. The Lukoil-led Luksar venture has drilled nine wells in the 29,900 square kilometres located near the Ghawar oil field, but has said it will not proceed with a second phase of exploration. Even so, Lukoil officials continue to talk up prospects, with vice-president Leonid Fedun claiming a discovery of 400 billion cubic metres of gas in August this year.

Lukoil’s experience in the Empty Quarter is mirrored in other Russian corporate activities in the kingdom. In 2009-11, more than 15 Russian firms that tried to launch operations in Saudi Arabia encountered setbacks, according to the Russian International Affairs Council.

Russian Railways was awarded a contract in January 2008 to build the 480km North-South minerals railway line in the kingdom, only to have the deal rescinded later that year after the Finance Ministry decided to retender the civil works contract. As MEED reported at the time, a decision was taken that the “right people had not been qualified”.

This particular setback may be ominous for Russian firms, given that the kingdom’s $100bn railway development plan could afford numerous opportunities for rail specialists such as Russian Railways, Zagranstroy and Zarubezhstroy.

For all the commercial setbacks, broader Saudi-Russian relations have nonetheless improved since the nadir of 2012, when it appeared that only the Kremlin’s intransigence stood in the way of regime change in Damascus. There are tentative signs of a coming together of the two countries, at least in those areas where their interests coincide.

The influence of both sides on the rival antagonists in Syria – Russia’s backing of Al-Assad in diplomatic and military terms, and Saudi funding for various rebel factions – means neither country can afford to pretend the other does not exist.

“They need to discuss what might happen after the collapse of the regime, the distribution and balance of a future Syrian government,” says Malashenko.

As the Middle East evolves in the wake of the Arab unrest, new avenues for Saudi-Russian cooperation are also emerging. Egypt, whose military administration enjoys solid Saudi and Russian support, is a potential arena for the two countries to merge their resources to mutually beneficial effect. Speculation that Saudi funding may be used by the Egyptian army to purchase Russian-made aircraft is one example of this.

This coming together of two states with a vested interest in seeing stability in the Middle East could shape a new phase of Saudi-Russian bilateral links. But sceptics remain unconvinced that Riyadh should invest too much effort in shoring up its relations with Moscow.

Declining power

“Russia is a declining power and the only asset it has in the Middle East right now is Syria,” says Gause. “Add to that the possibility that there will be downward pressure on oil prices, then the Russians and the Saudis really don’t have that many common interests.”

Despite Prince Bandar’s attempts to forge a joint energy approach with Moscow earlier this year, it seems a very distant prospect. “It would be very hard to get the Russians to join in production cutbacks, which is what the Saudis want to prop up oil prices,” says Gause.

Were there to be a restructuring of the world crude market, it would be easier for Russia and Saudi Arabia to forge common ground. But it is more likely that the two sides will still see each other in a zero-sum game, in a declining price atmosphere.

Prince Bandar’s diplomatic endeavours aside, Riyadh and Moscow look set to remain poles apart on major issues confronting the region.

Key fact

Russian exports to the kingdom are rising, reaching $1.1bn in 2012

Source: IMF

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