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Ostracized by the West, Russia Finds a Partner in Saudi Arabia

As Russia gathered troops on the border with Ukraine and invaded the country at the start of the year, Saudi Arabia’s Kingdom Holding Company quietly invested more than $600 million in Russia’s three dominant energy companies.

Then, in the summer, when the United States, Canada and several European countries cut oil imports from Russia, Saudi Arabia suddenly doubled the amount of fuel oil it bought from Russia for its power plants, freeing up its own crude for export.

And this month, Russia and Saudi Arabia directed the Organization of the Petroleum Exporting Countries and its allied producers to cut production targets in a bid to support global oil prices, which were on the decline, a decision that would hurt oil profits from both sides. countries should increase.

Taken together, the moves represent a clear Saudi tendency towards Moscow and away from the United States, which it has typically associated itself with. The Saudi position does not conform to an outright political alliance between Crown Prince Mohammed bin Salman of Saudi Arabia and President Vladimir V. Putin of Russia, but the two leaders have reached a settlement that benefits both sides.

“It is clear that Saudi-Russian ties are deepening,” said Bill Richardson, a former US Secretary of Energy and Ambassador to the United Nations.

By working more closely with Russia, the Saudis are actually making it harder for the United States and the European Union to isolate Mr Putin. As Europe gears up to sharply cut the amount of oil it imports from Russia, Saudi Arabia and countries like China and India are acting as a last resort.

During the Cold War, Saudi Arabia and the Soviet Union were bitter enemies. Saudi leaders helped fund the uprising against the Soviet occupation of Afghanistan. But in recent years, when hydraulic fracturing of shale fields has led to a boom in US oil and natural gas production that undermines the power of OPEC and other major oil producers like Russia, the two countries have come to see each other as valuable partners with the same interests. It probably helps that Saudi Arabia is an autocratic kingdom and that Mr Putin has suppressed or eliminated most of his domestic political opposition.

After oil prices collapsed in late 2014 and 2015, Moscow and Riyadh teamed up to prevent US companies from dominating the global energy market. In 2016, Russia and Saudi Arabia agreed to expand the oil cartel, creating OPEC Plus. Their partnership has proved lasting, with the exception of a brief spat in early 2020, when the onset of the coronavirus pandemic led to a collapse in oil prices and the two countries disagreed on what to do.

“The Russians and Saudis have a similar interest in driving up the price of oil, and the war in Ukraine has only exacerbated that,” said Bruce Riedel, a former Middle East analyst for the Central Intelligence Agency and the author of “Kings and Presidents: Saudi Arabia and the United States since FDR”

Saudi officials have found Russia to be a useful partner in managing OPEC Plus, an often troublesome group of oil producers with differing ideas about managing oil supplies and prices.

The group works closely with Alexander Novak, a former Russian energy minister who is now deputy prime minister. Analysts describe him as willing to sit for hours with ministers of other oil-producing countries to hear their plans, concerns and grievances.

By announcing a minor cut in production earlier this month, OPEC Plus showed its independence from President Biden, who visited Saudi Arabia in July and exchanged a punch with Prince Mohammed. The visit was widely interpreted as an attempt by Mr. Biden to restore relations between the US and Saudi Arabia after he criticized the country during the 2020 US presidential election for the assassination of Washington Post columnist Jamal Khashoggi. .

The president has been encouraging Saudi Arabia to produce more oil for months. The cartel’s reduction in production reversed the policy of gradually increasing production.

Saudi Arabia has often allied itself with the United States, including quietly supporting efforts to improve relations between Israel and its Arab neighbors. Now, some analysts said, the kingdom appears to be putting more emphasis on its financial interests by working closely with Russia, while the United States and Europe seek to isolate and punish Putin for invading Ukraine.

“It’s quite remarkable that Russia has been able to sideline Saudi Arabia,” said Jim Krane, a Middle East expert at Rice University. “Putin’s goal is to come between the US and its allies, and in the case of the US relationship with Saudi Arabia, Putin is making some progress.”

Oil executives in the Persian Gulf say Saudi Arabia and other Gulf states are only doing what’s best for them.

“These decisions protect Saudi Arabia’s own commercial interests and make tremendous sense from Saudi Arabia’s own economic perspective,” said Sadad Ibrahim Al Husseini, a former Saudi Aramco executive.

Some Middle Eastern energy executives said the United States and other Western countries were not reliable partners for oil exporters, in large part because they were trying to buy the world off fossil fuels in an effort to tackle climate change.

“Years of schizophrenic energy policies in Europe and the US have created significant energy security vulnerabilities that major producers are adapting to,” said Badr H. Jafar, the president of Crescent Petroleum, a United Arab Emirates oil company. “And the energy chessboard is likely to continue to shift in the months and years to come.”

Many of Saudi Arabia’s actions regarding Russia can also be interpreted as opportunistic decisions to make easy money.

When the stock prices of Gazprom, Rosneft and Lukoil — the three major Russian energy companies — plummeted early this year due to Western sanctions, Kingdom Holding Company, which is led by a Saudi prince, Alwaleed bin Talal, dove in and invested about $600 million. in them, according to regulatory filings.

Saudi Arabia’s sovereign wealth fund, led by Prince Mohammed, has a significant minority stake in Kingdom Holding.

The investment represented nearly half of the company’s new global equity investments in the first half of the year, and came at a time when many Western companies announced they were leaving Russia. It was one of the largest Saudi investments since the sovereign wealth fund announced a $10 billion fund to invest in Russia in 2015, although it’s unclear whether Saudi Arabia actually invested all that money.

“This major Saudi investment in the Russian energy sector is an attempt to further align Saudi and Russian interests in maintaining prices,” said Gregory Gause, an expert on Middle East politics at Texas A&M University. .

In April, Saudi Arabia and its closest ally, the United Arab Emirates, began to ramp up imports of Russian refined fuel oil at heavily discounted prices for use in their power plants. By importing those fuels, Saudi Arabia could sell more of its crude oil at high prices to other countries.

Russia’s direct deliveries to Saudi Arabia reached 76,000 barrels per day in July, the second-highest total in history after September 2018, according to Kpler, a commodities research and data company. More Russian fuel oil is likely to have entered Saudi Arabia indirectly through Estonia, Egypt and Latvia, said Viktor Katona, a Kpler analyst.

Much of that heating oil once went to the United States, where the refineries on the Gulf Coast processed it into gasoline, diesel and other fuels. But the United States banned imports of Russian oil in March, prompting Russian exporters to rush to find other buyers and offer the fuel at relatively low prices.

“It’s a fire sale,” said Ariel Ahram, a Middle East specialist at Virginia Tech.

Other countries such as China and India also bought Russian oil, often at a discount of 30 percent or more. Saudi purchases of Russian fuel oil are declining at the end of the summer, but could increase again next year.

Saudi-Russian relations are historically multifaceted and rarely fully aligned. The two countries have backed a faction in Libya seeking control of the violence-torn country. But Russia has long maintained close relations with Iran, Saudi Arabia’s biggest rival, including over the civil war in Syria.

Prince Mohammed has not said much in public about the Russian war in Ukraine. But at the United Nations in March, Saudi Arabia voted overwhelmingly in favor of a resolution denouncing the invasion. The kingdom has also increased oil sales to Europe, replacing some of the oil countries there once bought from Russia.

“From a Saudi perspective, they certainly don’t want to be in the middle of a Western Russian dispute,” said Helima Croft, head of global commodities strategy at RBC Capital Markets.

But that reluctance should not be mistaken for neutrality, other experts said.

“I think MBS wants to play in the big leagues, and whatever gives him that opportunity, he’s going to be opportunistic about it,” said Robert W. Jordan, the ambassador to Saudi Arabia in the George W. Bush administration. “If there’s a way to help Putin, great, and it doesn’t hurt that he can show that he is independent of American influence.”