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Why Russia won’t abandon OPEC+ just yet

Vladimir Putin pried loose a couple of energy investment deals from Saudi Arabia on his latest visit to the region, but their total value reached only hundreds of millions of dollars, not the billions Russia had hoped for. He also picked up an investment from the UAE during his Middle East trip. Although overall, the results were modest, every such economic agreement lays the groundwork for more in the future, The Jamestown Foundation analyzed.

Why Russia won’t abandon OPEC+ just yet

Moscow has been trying to strengthen its partnerships with the cash-rich Gulf states since striking a deal 3 years ago with the OPEC, which would ultimately transform into the “OPEC+” coalition to raise global oil prices. Russia also wants stronger ties with the Middle East to boost its stature in the region and obtain energy-project financing that Western sanctions have blocked. Saudi Arabia, however, has been dragging its feet on investments because Russia is an oil and natural gas competitor.

The Saudis had originally instigated the OPEC+ deal. But Russia embraced the overture because it wanted to see falling oil prices stabilize and thought it could obtain geopolitical and investment benefits from the arrangement. Now, Riyadh hopes to extend OPEC+ for a decade or more, but Moscow refuses to commit to such a timeframe.

The Russian side wants to be able to pull out of the agreement if shifting geopolitical and economic circumstances mean that it would be better off on its own again. Another important factor in why Moscow balks at a long-term OPEC+ deal is opposition from Russia’s energy-sector oligarchs, who want no limits on their ability to pump more oil.

If Russia begins leaning toward abandoning OPEC+, it will have to weigh whether this decision is worth losing its partnership with Saudi Arabia over. After all, Moscow is still hoping for multi-billion-dollar Saudi energy investments. The 2 countries’ sovereign wealth funds established a $10 billion investment fund after King Salman bin Abdulaziz al–Saud visited Russia in 2017 to facilitate such deals.

Kirill Dimitriev, the head of the Russian Direct Investment Fund, boasted recently that the countries’ joint fund has already invested $2 billion in Russian and Saudi projects. But most of this Russian money went to air transportation projects and other non-energy infrastructure, rather than to the oil and gas–sector expansion the Kremlin so desperately desires.

Putin had hoped a personal pitch, 2 years ago, to Energy Minister Khalid al–Falih would persuade the Saudis to buy into the Novatek Arctic LNG 2 liquefied natural gas project. But this overture failed; and al-Falih has since been fired. Russia was also unable to obtain Saudi investment in its largest oil and gas service contractor, Eurasia Drilling, or to persuade Saudi Arabia to allow state-owned nuclear power contractor Rosatom to build a plant in the Kingdom. The Russians and Saudis did sign several business-related documents during Putin’s visit last week, but most were non-binding MoU or cooperation agreements.

One binding agreement was for the 2 countries’ investment funds and Saudi oil giant Aramco to acquire 31 % of Novomet, a leading petroleum field services provider, from Russia’s state-owned Rosnano. Novomet specializes in manufacturing electrical submersible pumps for oil wells. The 2nd concrete deal during Putin’s trip was Saudi Arabian Basic Industries Company’s (SABIC) pledge to buy into a huge methanol plant that ESN Group is building at Amursk, in the Russian Far East.

Gazprom is set to feed the plant with natural gas. SABIC, the Russian Direct Investment Fund and ESN pledged to invest $200 million into the project. The binding deal Putin signed in the neighboring UAE was for Russia’s Lukoil to buy a 5 % stake in the Abu Dhabi National Oil Company’s Gasha gas field. As with the Russia-Saudi partnership, the sovereign wealth funds of Russia and the Emirates often play a central role in the 2 countries’ deals. For example, in 2018 the UAE’s Mubadala fund took a 44 % stake in Gazprom’s Neft-Vostok subsidiary, which operates 13 oil fields in Russia’s Tomsk and Omsk provinces.

Russia’s flirtation with the Gulf is nascent and holds promise, but it is still standing on sands that could shift at any time. Although Moscow has yet to translate its Gulf partnerships into substantial investment flows, its pivot to the region has undoubtedly begun yielding benefits. The biggest is the extension of the OPEC+ agreement for 2 more years, keeping a floor under global oil prices.

Another boon to Moscow is that Russia and its Arab-state partners have been able to separate their geopolitical interests - which are often at odds - from their economic ones, where both sides stand to gain. Against the background of this week’s Russia-Africa Summit as well as the security deal on Syria that Moscow has reached with Ankara, the Kremlin’s attention toward this region and the “Global South” more generally can only be expected to increase.