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Oil Aside, Putin’s Saudi Bromance Yet to Yield Dividends


By Henry Meyer

(Bloomberg) Russian President Vladimir Putin’s visit on Monday to Saudi Arabia, only his second since he came to power two decades ago, underscores the new depth in ties between the Kremlin and the traditional U.S. ally. Yet there’s also growing frustration in Moscow at the lack of tangible economic benefits.Putin has built a personal bond with the de facto Saudi ruler, 34-year-old Crown Prince Mohammed bin Salman, famously sharing a high-five greeting with him at the Group of 20 summit last year. Geopolitically, Russia hopes to capitalize on its ability to navigate between arch-foes Saudi Arabia and Iran.But since the landmark deal with OPEC, under which Russia anchored itself to the Saudi-dominated oil cartel in order to stabilize prices, promises of multi-billion-dollar investments and other deals have largely failed to materialize.The Russian Direct Investment Fund said it will sign deals for more than $2 billion of Saudi investment in the agricultural, petrochemicals and other sectors during Putin’s trip. Even so, the fund’s unlikely to take part in the most important deal at hand – Saudi Aramco’s IPO. RDIF Chief Executive Officer Kirill Dmitriev declined to comment.Russia’s Sibur Holding is weighing petrochemical complex in Saudi Arabia worth more than $1 billion, Putin reiterated in a joint interview to Al Arabiya, Sky News Arabia and RT Arabic, RIA Novosti newswire reports.“The Russian-Saudi relationship is good on the surface but it’s lacking substance,” said Alexey Potemkin, chief executive officer of Moscow Policy Group, a consultancy that advises on Russia-Gulf cooperation. “The Saudis promised in return for the OPEC+ deal, Russia would get lucrative investments and great business opportunities, which unfortunately has not happened as the Russians expected.”

Investment

Prince Mohammed met Putin in 2015 and promised $10 billion in investment to cement their newfound friendship. Saudi Arabia renewed that pledge during King Salman’s 2017 visit to Moscow. The kingdom so far, though, has only delivered just over a quarter of that, according to Russian statistics.

Big Promises

OPEC+

The Organization of Petroleum Exporting Countries and its allies, known as OPEC+, have an agreement for production cuts of 1.2 million barrels a day that expires in March. They’re due to meet again early in December. Saudi Arabia has borne the brunt of the cuts since the oil producers’ group joined with Russia in December 2016 to curb output, but the Kremlin’s continued participation is vital to Riyadh’s efforts to prevent prices from dropping too low.

Uneven Partnership

LNG

Plans by Aramco to jointly develop liquefied natural gas in the Arctic with Russia’s Novatek PJSC have come to a halt. The Saudi energy giant had expressed interest in acquiring a 30% stake in the Arctic LNG 2 project, which is worth about $30 billion, but the deal was put on hold earlier this year. Instead, Novatek sold a 10% stake to two Japanese companies in June.

Defense

King Salman signed a memorandum of understanding in Moscow to buy Russia’s advanced S-400 anti-missile defense system. Negotiations since then haven’t made progress. With the U.S. penalizing NATO member Turkey for buying the S-400, Saudi Arabia may risk sanctions too. Putin jokingly suggested last month that the Saudis equip themselves with the weapons to protect against attacks on oil infrastructure like the drone strikes that temporarily wiped out half their oil output and which they blamed on Iran. Russia is unlikely to secure the S-400 deal because it’s “highly political” and would harm Saudi ties with the U.S., said Ruslan Pukhov, a defense expert who heads the Moscow-based Center for Analysis of Strategies and Technologies.

Syria/Iran

As the U.S. pullback in Syria strengthens Russia’s clout, Kremlin policymakers remain focused on securing outside financing to reconstruct the war-shattered Middle East nation. So far, Saudi Arabia and its regional allies have tied any aid to a political transition away from Syria’s Russian-backed President Bashar al-Assad. Turkey’s offensive against Kurdish militias in northeast Syria has made the situation even more complicated.

Nuclear

Russia’s state-owned Rosatom is among five companies shortlisted for a bid to build Saudi Arabia’s first nuclear power plants. Initial hopes in Moscow have faded, however, with a rival U.S. bid seen as a front-runner.



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