Saudi Arabia – Russia – Iran: oil delays the king’s visit

Saudi King Salman has been expected to visit Russia since last autumn. In Sept 2015, he visited the United States. On Apr 7 2016, he paid a “historic” visit to Egypt. A few days ago he received the Indian prime minister. But he is not in a hurry to visit Moscow.

The Russians expected to shortly learn when exactly the Saudi King was going to visit them. They hoped he would find time for such a visit before the next meeting of oil producers in Doha on Apr 17. But he didn’t. And the cause is not only Salman’s tight schedule or his old age.

The Saudi King is waiting to see what is going to happen in the Middle East next. The Russian-Saudi relations have already hit the ceiling and now they need the Saudis’ initiative for being able to grow further. But they in Riyadh are not in a hurry. They prefer to be slow and careful.

Though actively cooperating with the Iranians and the Syrians and supporting the Syrian president, the Russians are pragmatic enough not to miss the chance to get closer ties with the Saudis. In their turn, the Saudis are fed up with the Americans’ unstable policy in the Middle East.

Russia and Saudi Arabia have lots of common grounds. Since the Jan 2015, when Salman came into power, the two nations have been steadily developing their contacts. Both produce more than 10 million barrels of oil a day. And their aggregate share in global oil market exceeds 25%.

So, we see that they have decisive roles on the market and can and must try to pull the other producers out of the crisis.

In mid Feb 2016 Russia, Saudi Arabia, Venezuela and Qatar met to agree to freeze their oil outputs at the level of Jan 2016. But it was a false start as Iran has objections.

At first, the Iranians expressed support for the initiative but then they started enlarging their oil supplies to Europe and Asia. And recently they said that they will not stop until they start producing 4 million barrels a day.

The Russians gave the Iranians time to change their mind. Even more they offered them special terms. At first, the Saudis did not mind but when the Iranians rejected the offer, they said that they would only freeze their oil output if Iran and other major producers did so.

In an interview to Bloomberg, King Salman’s son, Mohammad bin Salman said that if all countries agree to freeze production, they are ready. "If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door,” he said.

Earlier experts expected that the Saudis might first freeze their output at 10.2 million barrels a day and only then would start negotiating with the Iranians. This would be a guarantee that they would not lose their leading role in OPEC and will not give their shares in Asia and Europe. But Iranian Oil Minister Bijan Zanganeh was very uncompromising. He said that Iran would not freeze its output. As a result, it is already producing more than 2 million barrels a day.

Thus, oil producers have fewer chances to come to any agreement in Doha on Apr 17. In fact, this meeting makes no more sense. This is perhaps why King Salman is not going to Moscow. Had the Russians managed to convince the Iranians, he would have found time to go there.

But he didn’t. Instead he is now trying to convince everybody that his economy is strong enough to endure low prices. And he is right: today Saudi Arabia has more financial and other resources than Iran or any other oil producer has. In the meantime, the so-called proxy war between the Saudis and the Iranians has moved to the oil market. The sides are beginning to fight for shares in Asia and Europe. The Saudis’ weapon is their ability to endure even $20 oil price – a price that will make it almost impossible for the Iranians to get any money for their oil and gas sector.

But even though having much less financial resources, the Iranians are ready to fight for the market and the Al Saud family has lots of reasons to be anxious.

Today, Saudi Arabia is losing shares in many of its traditional markets. According to Financial Times, in 2013 Saudi Aramco had 8.5% of global market. In 2015 it had 8.1%. Big losses were registered in China – from 19% to 15% - and the United States – from 17% to 14%. But the biggest loss is in South Africa – from 53% to 22%.

This does not mean that the Iranians will get what the Saudis have lost. In South Africa, for example, preference is given to oil from Nigeria and Angola. Iran does not have enough oil to force Saudi Arabia from its traditional markets but its growing output is boosting rivalry inside OPEC.

So, we can say that today oil producers are selling oil against each other. But this war may have quite serious consequences and may go beyond economics. In Jan 2016 we already witnessed a diplomatic conflict between Saudi Arabia and Iran. This may result one day in military clashes in the Gulf, in mostly Shiite eastern Saudi Arabia and in mostly Arab Iranian province of Khuzestan.

Though both Saudi Arabia and Iran are OPEC members, oil is not bringing them any closer. In such a situation, third countries are trying to be neutral.

There are no chances that King Salman and Ayatollah Khamenei will ever meet or reconcile. But the younger generation of Saudi leaders has no such complexes and may well act otherwise.

Even if the old Saudi King visited to Moscow, all he would say there would be just a couple of political symbols, while what the sides need is brave if not revolutionary decisions (1). And this is what the Saudis’ generation next may offer.

Saudi Defense Minister and Deputy Crown Prince Mohammad bin Salman is now the second hopeful for the Saudi throne. The first one is Crown Prince, Interior Minister pro-American Mohammad bin Nayef. But bin Salman is said to be very active in putting whoever he needs wherever he needs. Particularly, he has his men in Saudi Aramco.

Salman’s son has visited Russia twice already. And both times he met with President Putin. The visits have shown that they in the Kremlin like the Saudi prince and see in him an opportunity for better relations with Saudi Arabia.

(1) By Salman’s visit the Russians had worked out a proposal for selling arms to Saudi Arabia. More specifically, they suggest selling the Saudis planes, air defense systems and some other weapons for a total sum of $10bn.

EADaily’s Middle East Bureau