Russia » Economics
Author`s name Dmitriy Sudakov

King of Saudi Arabia in Moscow: Russia's most cherished dream comes true

The King of Saudi Arabia, Salman bin Abdul Aziz Al Saud, arrived in Moscow on September 4. The Saudi king will stay in Moscow till October 7. Experts believe that the state visit of the Saudi monarch to Moscow may justify Russia's hopes in the field of economic and defense cooperation with the largest monarchy of the Gulf.

Saudi Arabia started preparing for the visit of the 81-year-old monarch, who rarely travels outside his country, several years in advance. The parties meticulously discussed the agenda of the talks and took account of geopolitical factors. Now everything will depend on the personal meeting between the leaders of Russia and Saudi Arabia. The landmark meeting is to take place on October 5 in the Kremlin Palace.

President Putin said on October 4 during the Russian energy forum that he intends to discuss with the King of Saudi Arabia an opportunity to extend the agreement to reduce oil production with the OPEC countries. According to representatives of the Kremlin, issues of defense cooperation between Russia and Saudi Arabia are going to be discussed as well.

As a result of the talks, the two countries may sign a number of documents to conclude landmark deals in the energy sector, infrastructure, high-tech and other sectors of the economy, which, as many experts acknowledge, will take the relationship between the world's two largest producers and exporters to the level of strategic partnership.

Saudi Arabia's investment in Russia has already amounted to $1 billion, but Russia intends to increase the amount further at least twice.

In September 2016, Russia and Saudi Arabia, which account for 25 percent of global oil production, signed an agreement on joint actions to maintain stability on the oil market. The agreement regulated actions between oil producing countries to cut their oil output, which made it possible to stabilize oil prices on the world market after their considerable decline. The work on the agreement opened new opportunities for Russia and Saudi Arabia in the field of economic cooperation.

The Russian Direct Investment Fund and the Saudi Arabia Public Investment Fund (PIF) signed an agreement in 2015 to set up a $10 billion joint venture fund that has already made investment in agriculture, real estate, infrastructure and the oil and gas sector. The Russian administration hopes that the meeting between the Russian President and the King of Saudi Arabia will bring the relationship of the two countries to a qualitatively new level. Investments in a number of sectors of the Russian economy have been approved, including in large-scale projects.

Russia to take part in Saudi Arabia's Vision-2030 reform plan

The parties will discuss Russia's participation in the implementation of the Saudi reform plan known as Vision-2030, which was authored by the Crown Prince of Saudi Arabia, Mohammed bin Salman Al Saud. The plan envisages the privatization of a share in the world's largest oil company Saudi Aramco, the diversification of the country's economy, which remains highly dependent on oil production and exports, as well as investments in energy, infrastructure and technology projects around the world.

However, the head of Saudi Aramco, Amin Nasser, told reporters that during the visit of the King of Saudi Arabia to Moscow, the parties did not intend to discuss the participation of Russian companies in Saudi Aramco's IPO (initial public offering), TASS reports.

Saudi Aramco, the world's largest oil company evaluated at $5 trillion, plans to sell up to five percent of its shares in an IPO that has all chances to become the largest IPO in history.

At the same time, the volume of trade between Russia and Saudi Arabia remains low. According to the Ministry of Economic Development, the volume of trade between the two countries has increased by 30% in the first half of 2017 compared to the same period last year, having amounted to $430 million. Such numbers do not correspond to the potential of trade and economic cooperation between Russia and Saudi Arabia, experts acknowledge.

Russia and Saudi Arabia intend to create a work group to eliminate obstacles for the cooperation between the two countries, the head of the Russian Ministry of Energy, co-chairman of the Russian-Saudi intergovernmental commission, Alexander Novak, said Thursday.

A joint investment forum will be held in the framework of the visit of the Saudi King Salman to Moscow. More than 200 companies intend to cooperate in the forum, including the world's largest oil producer Saudi Aramco, as well as Gazprom Neft, Sibur, Aeroflot and Phosagro of Russia.

Top Russian and Saudi officials will take part in the work of the forum, including the Minister of Energy of the Russian Federation Alexander Novak and the Minister of Trade and Investment of Saudi Arabia Majid bin Abdullah al-Qasabi.

Russia's Gazprom Neft plans to sign a memorandum of cooperation with Saudi Aramco on the establishment of a joint research and development center, while Sibur is expected to sign a memorandum on cooperation in implementing a joint oil and gas chemical project in Saudi Arabia. Russia's largest oil company Rosneft will discuss joint oil trade on world markets with Saudi Aramco.

Russia wants to sell military hardware to Saudis, but they don't buy yet

The defense cooperation between Russia and Saudi Arabia are listed among the main topics of the talks in Moscow. Over the past few years, Saudi Arabia has evinced interest in a wide range of Russian military hardware, such as  T-90 tanks, infantry combat vehicles, air defense systems, tactical missile systems, and combat helicopters. However, no contracts have been signed yet. In December 2015, Russian President Vladimir Putin said that Moscow was considering joint multi-billion dollar projects in the field of defense cooperation with Riyadh.

In July, Rostec CEO Sergei Chemezov announced the signing of a preliminary agreement in the field of defense cooperation between the Russian Federation and Saudi Arabia in the amount of 3.5 billion US dollars.

The current talks in Moscow will determine the fate of the package of arms contracts, including the delivery of S-400 Triumf anti-aircraft missile systems to Riyadh. Moscow has been trying to enter the Saudi arms market for ten years. The parties discussed packages of agreements worth up to $20 billion, but no solid contracts were signed. According to Sergei Chemezov, the Saudis wanted Russia not to supply weapons to Iran, the Kommersant wrote.

According to the publication, Saudi Arabia does not plan to sign the deal to acquire S-400 missile systems from Russia during King Salman's visit to Moscow. Yet, pre-contract negotiations on the subject may commence should all necessary agreements are reached during King Salman's meeting with President Putin. In case of a positive outcome, contracts are likely to be signed during the meeting of the Russian-Saudi intergovernmental commission for defense cooperation, which is to be held in late October 2017, the Kommersant wrote.

USA cool about King Salman's visit to Russia

Meanwhile, the US State Department does not see anything unusual in the visit of Saudi King Salman bin Abdul Aziz Al Saud to Russia.

US State Department spokesperson Heather Nauert was asked during a recent briefing whether the United States was concerned about the recent moves of its staunch allies - Turkey and Saudi Arabia.

"Today, the King of Saudi Arabia went to Moscow, and at the same time, the president of Turkey went to Tehran, to Iran. Both are U.S. allies, strong U.S. allies. Do you feel that U.S. allies are sort of moving away from the United States of America and going elsewhere, maybe forming new alliances?" a journalist asked.

"Last time I checked, foreign ministers and leaders from other parts of the world are allowed to get on airplanes and go meet with their counterparts in other countries. It's called diplomacy. We do a lot of that, they do a lot of that. I don't see our relationships with any of the major countries changing," Nauert responded.

Experts believe, however, that the alliance between Moscow and Riyadh may change the current situation on the world oil market.

Saudi Arabia and Russia produce almost a quarter of all oil in the world. If the Saudis make direct investments in Russian assets, this will undoubtedly show influence on the entire oil market. However, there are US sanctions on the way of cooperation between Saudi Arabia and Russia. The sanctions that the West and the USA imposed on the Russian oil and gas industry may become a serious problem for Saudi companies that wish to invest in Russian projects.

At the same time, Russian President Vladimir Putin successfully fills the "power vacuum" in the Middle East and in fact has become its new "master," Bloomberg said. The heads of the countries of the Middle East maintain close ties with Moscow. Israel, Turkey, Egypt, Jordan and other countries of the region gradually turn to Russia being fed up with the policy of the USA. Even though the United States still takes the dominant position in the Middle East, the adherence of the region to traditional alliances has been weakening recently while regional leaders try to look for alternatives.

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