Oil Giants Russia, Saudi Arabia Sign Landmark Agreements

Russia and Saudi Arabia, the two largest oil producers and exporter in the world, signed major agreements on the first state visit by Saudi King Salman bin Abdul Aziz Al Saud to Moscow. The landmark agreements that will allow the two countries to reduce dependence on commodity markets.

Saudi Arabia, which for many years was the main ally and supplier of oil to the United States in the Middle East, began to search for ways to diversify its economy after a sharp drop in oil prices.

For decades, relations between the two oil powers, Russia and Saudi Arabia, remained cool, but the sharp fall in oil prices in 2014 opened the prospect for rapprochement, which acquired specific features in the course of joint work on an agreement between oil producing countries to cut production. In 2016, Saudi Arabia developed a plan for economic reform “Vision 2030”, authored by Crown Prince Mohammed bin Salman Al Saud.

The plan involves privatizing a stake in the world’s largest oil company Saudi Aramco, diversifying the country’s economy, reducing dependence on oil revenues, and investing in projects in energy, infrastructure, and technology around the world.

“Russia enters the Vision-2030 program as a very important partner in economic development and investment,” said Saudi Arabia’s Minister of Trade and Investment Majed bin Abdullah al-Qasabi at the Russian-Saudi investment forum that took place on the sidelines of King Salman Bin’s visit Abdul Aziz Al Saud.

Russia-Saudi Deals

On the basis of the signed agreements, the Russian Direct Investment Fund (RFPI) and Saudi Arabia’s Public Investment Fund (PIF) will create platforms for investment in the energy and technology sectors, with investments in each platform amounting to $ 1 billion.

“We see a lot of synergies between the economies of Russia and Saudi Arabia.We are the largest oil producers, therefore, mutual investment in this area has great potential,” said PIF Managing Director Yasir ar Rumayyana. The Fund will invest in the field of exploration and production, as well as in procurement of oil and gas equipment. Investments from Saudi Arabia will help Russian companies in this sector to enter the world market.

At the same time, the Managing Director of the PIF, whose volume is about $ 180 billion, stressed that cooperation will not be limited to the oil and gas sphere alone. “We do not know much about Russian technology, but we hear a lot of good about them, this is one of the areas that we would like to work on.” We also want to look at other sectors of the economy, for example, agriculture and the consumer sector, “- said Rumayana.

Earlier, the government of Saudi Arabia announced a complete refusal of wheat production because of its low efficiency due to weather conditions. At present, the Ministry of Agriculture of Russia is working on ways to increase the supply of Russian grain to Saudi Arabia and attract additional investment in the Russian agro-industrial complex.

Saudi investors are also looking at investment in infrastructure construction. PIF signed an agreement to buy a stake in the company that will build a stand-in at Kutuzovsky Prospekt in Moscow and a light rail line in St. Petersburg on the basis of public-private partnership. The volume of investments in these infrastructure projects will be $ 100 million.

Further advance

The most significant result of the rapprochement between Russia and Saudi Arabia remains the agreement signed in 2016 on joint actions to maintain stability in the oil market. During the visit, both countries agreed to continue cooperation to stabilize the oil market. “Further progress with Saudi Arabia will be directed, among other things, to continuing efforts to stabilize the oil market,” said RFPI head Kirill Dmitriev.

Gazprom Neft and Saudi Aramco have signed an agreement on cooperation in the oil and gas sector, the next step could be joint development of fields and cooperation in the field of oil refining. The agreement envisages cooperation between Gazprom Neft and Saudi Aramco in such areas as development of drilling and well workover technologies, improvement of pumping systems, development of non-metallic large diameter pipes.

Bad Business or Bad Marketing

Rosatom also sent proposals to the Saudi side for the construction of a nuclear power plant in Saudi Arabia within the framework of an intergovernmental agreement on cooperation in the field of peaceful nuclear energy, concluded in the summer of 2015.

However, the volume of trade between Russia and Saudi Arabia remains small. According to the Ministry of Economic Development, trade between the countries increased by 30% in the first half of 2017 compared to the same period last year, amounting to only $ 430 million.

According to most experts, these figures do not correspond to the potential of trade and economic cooperation between the two countries. “There is no bad business, there is bad marketing, it’s impossible to increase the volume of trade without building understanding and communication.” When we manage to build trust, the volumes of trade and investment will grow by themselves, “al-Qasabi said at the investment forum.