Russia seals key energy pacts with Saudis, shaking up US Mideast dominance

For decades the geopolitical map of oil had two main poles – Saudi Arabia/Emirates and the United States of America.

Even when The Soviet Union dissipated and Russia found itself to be the second largest oil exporter in the world (in 2011), the landscape seemed then to be altered only slightly, with Russia as an outlier to the great power exerted at times by the Organization of Petroleum Exporting Countries. However, things have been quietly changing in recent years, and this week, Russia has solidified her position in the petroleum market in a major way.

In Riyadh major energy deals were signed, with Russia offering to directly invest in Aramco’s upcoming IPO. This will help Saudi Crown Prince Mohammed bin Salman to diversify Saudi Arabia’s economy, one of his great concerns. Concurrently, new Saudi investment in Russia was also concluded.

The Aramco IPO is expected to offer about five percent of the whole company for sale. Both Russian and Chinese investors are interested, and they have formed a joint investment fund to get in on this IPO when it takes place. Several major Russian banks are also getting involved.

These commitments are good news for bin Salman (MBS) because they widen the scope of investment in his country. The Chinese were already involved, but with the Russians getting on board with this, the prospects look even better.

Moscow and Riyadh have had good relations, as shown in the recent agreement to cut production of oil by both OPEC and non-OPEC states. The benefit of this agreement amounted to some US $41.5 billion in proceeds, due to the higher oil prices. The new co-investment agreements show further positive development in those relations.

Aramco plans to enter into an investment scheme for the Arctic LNG-2 project (LNG is Liquified Natural Gas), one of Russia’s great natural resources. According to a statement made by Saudi Energy Minister Khalid al-Falih, this investment deal is to become part of Aramco’s gas strategy, and is expected to be onstream by 2023, producing some 18 million tons of LNG per year.

There are even more deals in the pipe than this. As the energy ties slowly but steadily grow, the need for international cooperation in matters of security and defense in states like Syria, Iran, and Iraq also rise. For a long time the United States has been the big military power player in the region, but now with these developments, the West is being eased out of its decades-long role.