Is Saudi Arabia new reliable partner of West-hit Russia?
Opportunistic policy to make easy money

ANALYTICS  07 December 2022 - 14:42

Since Russia militarily intervened in Ukraine approximately one year ago, the West faced a critical global energy deficit and economic recession. With the intervention, the US-led Atlantic community imposed harsh economic sanctions on Russia, pushing for its isolation from the global market, particularly the energy market. Amid sanctions, seaborne crude exports from Russia to Europe have plunged to historic lows, hitting 309,000 barrels per day (bpd) in November leading up to down from about 1.5 million bpd before the Ukraine invasion.

While many Western partners ceased all business ties with Russia, Saudi Arabia’s state-owned company quietly invested more than $600 million in Russia’s three dominant energy companies and doubled the amount of fuel oil it was buying from Russia for its power plants, freeing up its own crude for export.

With sanctions placed on Russia due to the invasion of Ukraine, its fuel has been sold at a discounted rate to attract buyers. According to the available data, Saudi Arabia imported 647,000 tons (48,000 barrels per day) of fuel oil from Russia via Russian and Estonian ports in April-June this year, compared with 320,000 tons in the same period in 2021. The decrease in Russian fossil fuels export to Europe forced Moscow to sell fuel at a discounted rate to India, China, and recently Saudi Arabia. As such, China’s crude oil imports soared by 55 per cent from the last year, with shipments equivalent to almost two million barrels per day (bpd), up a quarter from 1.59 bpd in April. Moreover, India is another big client of discounted Russian oil and coal. According to the local media, Russia supplied 9,35,556 barrels per day (bpd) of crude oil to India in October 2022 — the highest-ever export rate.

As a result of the energy deal with the Saudi kingdom, Russia made profits of around $20 billion from oil exports in May 2022. Seemingly, Saudi Arabia and Russia strengthened their energy partnership in an effort to prop up global oil prices, which were falling. Indeed, Saudi's deepening engagement with Russia poses a real challenge to its historical ally US, which seeks to wean off Russia from the global markets. However, the Saudis' policy of rapprochement with Russia is making it more difficult for the United States and the European Union to isolate the Kremlin.

Although US President Joe Biden travelled to Saudi Arabia in July 2022 to agree on increasing oil supply to global markets from the kingdom to help lower oil prices that have aggravated inflation worldwide, the long-term diplomatic relations and pressure on the kingdom yielded little positive results. On the contrary, Riyadh teamed up with Moscow to cut 2 million barrels of oil per day in October 2022 during the meeting of OPEC+ — a move that would drive up the price of oil. Following the decision, President Biden said that "there will be consequences" for Washington's relations with Saudi Arabia, though no strict measures have been seen ever since.

This is not the first time the US ally Saudi Arabia has aligned closely with Russia. In 2015, when the oil prices collapsed, Moscow and Riyadh collaborated to prevent American companies from dominating the global energy market. In 2016, Moscow and Riyadh agreed to expand the oil cartel, creating OPEC Plus. Seemingly, both countries have a similar interest in driving up the price of oil, and the Ukraine war has only reinforced that.

For several years, Saudi Arabia has imported Russian fuel due to the rising demand for cooling operations during high summer temperatures. Reportedly, some Saudi cities are far from natural gas fields that could provide cleaner fuel for power generation. The discounted price of Russian crude oil enables Saudi Arabia to compensate for domestic consumption while boosting exports to third countries. This strategy appears to be profitable, as other neighbouring states, namely the United Arab Emirates (UAE), have received 1.17 million tons of Russian fuel oil so far this year, according to ship tracking, compared with 0.9 million tons in the same period last year.

Another critical reason for Riyadh's growing ties with Moscow could be the kingdom's shifting priorities in its foreign policy agenda. Hence, after decades-long alignment with the West, the kingdom is emphasizing its financial interests more by working closely with Russia, even as the US and Europe seek to punish it for unprovoked war against Ukraine. To put it simply, amid global security cataclysms and a growing economic crisis, Riyadh's shift towards Moscow could be interpreted as an opportunistic decision to make easy money while ignoring the grievances of Ukraine.

Caliber.Az