The crude art of petro-diplomacy
Looking for a cue, the crude oil markets are currently focused on a football match – and indeed for a reason.
On the day Russian President Vladimir Putin and the Saudi Crown Prince Mohammad bin Salman (MBS) are scheduled to watch the inaugural World Cup soccer match between their two countries at Luzhniki stadium in Moscow. In the given circumstances, a meeting between the two oil giants carries significance and is expected to play a role in shaping the oil markets.
The meeting, if at all, would emit two distinct messages. Indeed, it would brush aside all speculation about the well-being of the Saudi crown prince who has not been seen in public since April 21 when fire shots were heard from near his palace in Riyadh.
Although photographs of MBS were released several times by the Office of the Crown Prince, yet it did not convince many. His meeting with Putin in an open stadium would take care of the all the speculations about his health. This would help take out the anxiety from the crude equation.
But crude markets are also looking at the meeting from a different perspective too. It is taking place only eight days before a crucial meeting of the Organisation of Petroleum Exporting Countries (Opec), providing a last-minute chance for the two leaders to iron out a possible oil output increase.
Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nayhan’s reported visit to Jeddah last Wednesday for talks with Prince Mohammed, soon after his own trip to Moscow last week, inflamed the speculation, Bloomberg reported.
To prop up the melting markets, Riyadh and Moscow had initially brokered the output constraint deal, in 2016, assembling a group of 24 Opec and non-Opec nations.
Ever since then, Moscow and Riyadh have been coordinating their moves on the global energy chessboard. However, over the last few weeks, Moscow has been emitting signals, it might be ready to wind down the agreement.
“We’re not interested in an endless rise in the price of energy and oil,” Putin said late May. Moscow was happy with oil prices around $60 a barrel, he said. Putin also made clear his deal with Saudi Arabia and the rest of Opec wasn’t open-ended. “Our arrangements were never intended to remain in force forever,” Putin added.
High-level petro-diplomacy is apparently in full swing. Riyadh is under considerable pressure from Washington to open taps. It has now been confirmed; a day before US President Donald Trump pulled the United States out of the Iran nuclear deal, a senior official of the Trump Administration phoned Saudi Arabia, asking it to help keep oil prices stable, should the US decision on Iran disrupt oil supply, Reuters reported on Thursday.
Although a senior Saudi official did not specifically confirm the call yet. He told Reuters: “We were made aware of the decision on the JCPOA (Joint Comprehensive Plan of Action) before the announcement…We always have conversations with the US about the stability of the oil market.”
Earlier Bloomberg too had reported that the United States had quietly asked Saudi Arabia and several other Opec nations to raise oil production by some 1 million barrels per day. This was not normal. Direct pressure on an Opec member over oil policies is rare and in recent history has not borne fruit. Washington last pressed Saudi Arabia, and without much success, to increase output in 2012. But with the major transformation in the bilateral relationship, ever since Trump entered the White House, Saudi Arabia cannot afford to stay oblivious to the US demands.
And as the momentum built, a discerning change in Saudi position became evident too. Before the US withdrawal from the Iran nuclear deal, the Saudi position was that the cuts would remain in place until the end of this year. But after the US walkout of the Iran deal, the Saudis started hinting at raising oil production to “address market and consumer anxiety.”
Yet, some Opec sources who spoke to Reuters said the change in Saudi thinking and tactics has “upset” some of its Gulf allies because they were not consulted prior to Riyadh’s change in heart on the issue. The stage is hence set for a tense Opec meeting later this month, at which the issue of reversing some of the output cuts, would be up for discussion.
But one thing is more than evident. Despite the opposition – Riyadh in gloves with Moscow – would still carry the day at the Opec moot. None can challenge it.
Published in Dawn, June 10th, 2018