Moscow’s relationship with OPEC at risk amid disagreement

The Bell

What happened

For the first time in over three years of close cooperation between Russia and OPEC, serious splits have arisen between the oil-producing partners. Some analysts say Russia’s increased role at OPEC in a period of sanctions is one of Putin’s greatest foreign policy achievements, but the recent OPEC meeting in Vienna, when they decided to cut production to halt falling crude prices, dragged on for two days. The head of the Russian delegation was forced to fly to Russia to personally consult with Putin.

  • OPEC members and other exporters agreed on Thursday to cut production, but the main participants couldn’t seem to come to an agreement on specific figures. Saudi Arabia insisted on a reduction of 1.2-1.5 billion barrels per day (equivalent to the current daily surplus on the world market), but Russia wouldn’t agree to its share. The climate in Russia doesn’t allow for a fast reduction in production during the winter, explained Russian Energy Minister Alexander Novak. The negotiations were so difficult that during a break on Thursday, Novak flew to St. Petersburg to consult with Putin. After this, Russia’s position remained unchanged.
  • The pace of negotiations in Vienna illustrates how much OPEC has changed since 2016, when Russia became integral to negotiations within the cartel and some said the organization had turned into a club of two.
  • Moscow now has a key role in OPEC. The fall in the oil price (about 30% down from recent highs) is not as critical for Russia as it is for Middle Eastern countries due to Russia’s budget surplus and the weak rouble. For Russia, it makes sense to sell as much oil as it can at any price above $40/bbl. In 2018, Russia’s oil export profits are forecast to grow by 25% in rouble terms.
  • Unsurprisingly, Russian officials are satisfied with their relationship with OPEC and, despite the current problems, they are counting on a continued friendship with Saudi Arabia. The head of the Russian Direct Investment Fund, Kirill Dmitriev, has helped Putin and Novak smooth their relations with Saudi Arabia, recalled one person familiar with the situation. Dmitriev is on good terms with Mohammed bin Salman and often acts as an intermediary between Putin and the Saudi prince. In October, Dmitriev attended the Future Investment Initiative summit, despite a boycott by Western investment funds over the murder of journalist Jamal Khashoggi. The Saudis prefer to deal directly with decision makers, according to a senior Russian official and they appreciate the personal involvement of Putin and the work of Novak. The Saudis observed Novak’s access to Putin during the negotiations for the first deal between Russia and OPEC in 2016.

Why the world should care

Apart from nuclear weapons, influence at OPEC is one of the few main global arenas still open to the Kremlin. Friday’s negotiations show that, despite internal arguments over the cartel’s position, Russia’s influence remains strong.

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