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The Unlikely Alliance Between Russia And Saudi Arabia

Saudi Oil

It is something of an unholy alliance, but Russia and Saudi Arabia are becoming ever closer allies in a graphic example of realpolitik.

The two would probably be implacable enemies if their contrarian positions in Syria were any gauge – Russia closely aligned with Iran in their support of Bashar al Assad, yet Iran is Saudi Arabia’s public enemy number one and only major rival in the Middle East.

But economics trumps almost all, and the two’s interests are certainly aligned in trying to reverse the damage done by Saudi Arabia’s failed bid to squeeze U.S. shale drillers out of the market and the corresponding glut of supply forcing prices to painfully low levels – painful at least for oil producers.

As the FT observed in quoting RBC Capital Markets as saying, “Saudi Arabia and Russia are essentially now co-pilots of this operation (of restricting output to boost prices) and they’ve made it clear there will be no going back to chasing market share.” The article goes on to quote: “It’s a huge change from two years ago when Russia would not co-operate with OPEC and even questioned its relevance in the age of shale.”

The two agreed last week to not only extend but deepen production cuts for a further nine months into 2018.

Related: 4 Wildly Different Oil Price Scenarios For 2020

But not all agree with the International Energy Agency’s prediction that the cuts will be enough to balance supply and demand later this year.

A resurgent U.S. shale market is adding rigs – 35 just last month, to a total of 722 operational rigs by the end of May, according to the FT. Although the rate of growth is slowing from a peak in November of last year, suggesting gradually falling prices are affecting decisions to open or re-open more marginal fields.

Oil prices are hovering on either side of $50 per barrel, with WTI just below and Brent just above. Goldman Sachs is predicting average prices at just above current levels, downgrading earlier more bullish estimates.

Ultimately, OPEC, Russia and U.S. shale producers will find an equilibrium.

U.S. shale producers are too disparate a group to act in a coordinated manner and will increase or reduce production purely on the economics of whether they can make money or not. So regulating global supply and supporting prices falls to OPEC members and Russia.

The latest agreement in Vienna suggests they are finally willing to cooperate to do that, but their collective clout is not what it was and stability is probably the best they can hope for — as any dramatic price rise will just encourage more shale production.

By AG Metal Miner

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  • mothman777 on June 06 2017 said:
    How come? Saudi Arabia supplies arms to ISIS. The Wahhabi crypto-Jewish controlled Saudi Arabia is closely allied to Israel, who is also secretly allied to ISIS, directs it and treats it's wounded in Israeli hospitals as does the donmeh crypto-Jewish Turkish Erdogan government, Turkey being a NATO member.

    Putin is surrounded by the same 'men in dark suits', the Chabad Lubavitcher Kabbalists, that control the US government and Israel and the NATO countries. This is the face of the NWO, even whilst Putin publicly asserts that he opposes unipolar one world NWO government, he is controlled by the very people behind the 1991 US US Noahide Laws.

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