Political Angle of the Saudi-Russian Economic War

Developing Just Leadership

Ayman Ahmed

Sha'ban 07, 1441 2020-04-01

Special Reports

by Ayman Ahmed (Special Reports, Crescent International Vol. 49, No. 2, Sha'ban, 1441)

The Saudi-Russia tussle is not merely about oil and economics; there is also the political angle. The Saudi rulers appear not to have thought-through the consequences of their actions. Russian President Vladimir Putin is a shrew and sophisticated operator. He will strike at an opportune moment. The Saudis may have short-circuited their existence by trying to take on Russia. (Photo: DAVID MCNEW/AFP/GETTY IMAGES)

The Saudi regime’s decision to strongarm Russia into agreeing to its terms on oil production quotas will have strategic ramification for the Bani Saud and their Western backers beyond the field of economics.

Riyadh’s decision to flood the oil market is certainly not a simple economic matter; it is also political. From a purely business perspective, it makes no sense for the Saudis to deliberately devalue the only resource which keeps their regime financially afloat. If one owns a valuable commodity, it is in one’s interest to attempt to sell it for the highest possible price and if that cannot be achieved, the selling party usually attempts to sell the commodity at a price closest to the initially aimed high price. Thus, the Saudis could have kept the pre-March 6 prices of oil, which were much higher than they are today, while continue to negotiate with Russia without deliberately driving the price down.

On March 6, the Saudis offered Russia to cut oil production in a coordinated manner in order to maintain a reasonably profitable price of the black liquid. Moscow refused to go along with the Saudi plan. Riyadh then went for the jugular and announced that it will increase oil production to unprecedented levels.

Why the Saudis decided to do that and what exactly was said and offered at the OPEC+1 meeting in Vienna is not known outside of the small circle of government officials. According to Simon Watkins, former senior FX trader and head of Forex Institutional Sales and Trading for Credit Lyonnais, “collective amnesia seems to have gripped senior Saudis and other OPEC members alike about how disastrous the last Saudi Arabia-led attempt to destroy the US shale oil industry from 2014 to 2016 actually was. Appalling though the consequences were last time for Saudi and its now-much-poorer allies, this time around things are likely to be much, much, worse. The last time the Saudis tried this exact same strategy in 2014, it had a much greater chance of success than it does now.”

Since the breakdown of talks in Vienna last month, many experts and analysts have attempted to put forward an educated guess of what happened and why the Saudis acted in the reckless manner that they did. Most of the explanations publicized in the corporate media revolve around economic factors, but even those trying to explain the erratic behavior of the Saudis in economic terms, admit the limits of a purely economic explanations. Ed Crooks, former energy reporter at the Financial Times and now a consultant at energy consultancy, Wood Mackenzie, speaking to NPR’s Planet Money talk show, candidly admitted that “the absolute truth of why-did-this-fall-apart is that we are still trying to find that out ourselves. We don’t really know.”

Most analyses of why the Saudis shot themselves in the foot, place too much confidence in the Saudis as rational state actors. The Saudi regime’s past behavior shows that it operates in a narrow-minded fashion with little strategic foresight. It is an open secret that Riyadh is run by Washington and the Zionist entity of Israel. Previously, the White House was occupied by evil geniuses who would knock some sense into al-Saud’s primitive policies. At the moment, the Saudis are facing an unlucky period; their boss in the White House is as idiotic and as hedonistic as the Bani Saud ‘royals’. Thus, they lack rational oversight. Israelis are in political turmoil and the broader geopolitical tide in Syria, Palestine, Iraq and Lebanon is not in Riyadh’s favor.

In the near future the Saudi-Russian confrontation will mainly be visible on the economic front. However, once the economic war begins to affect the pro-Russian regimes in Kazakhstan and Azerbaijan, the geopolitical angle of the current confrontation will rise to the surface. Russia relies heavily on Azerbaijan and Kazakhstan as its political and intelligence steppingstones to influence the South Caucasus and Central Asia. Maintaining stability of these two regimes is an essential foreign policy objective of Moscow. Their destabilization affects Russia directly. There are over a million Azeris living in Russia, and Azerbaijan borders Russia’s most volatile region, the North Caucasus. Destabilization of Azerbaijan is always an undesired outcome for Moscow.

Kazakhstan on the other hand, if it slips out of Russia’s sphere of influence can be leveraged to join energy pipelines extending to Europe and cut Moscow from its profitable energy markets there. This scenario is a realistic scenario as at the end of November 2019, Turkey and Azerbaijan formally marked the completion of the Trans-Anatolian Natural Gas Pipeline (TANAP) that will bring natural gas from the Caspian Sea to Western Europe bypassing Russia.

Without Kazakhstan joining, TANAP is not very useful. Both Azerbaijan and Kazakhstan are run by despotic regimes with no real industries apart from oil and gas, thus both are highly dependent on oil income. According to oilprice.com, “Azerbaijan needs an oil price of around $53 per barrel to balance its budget. Benchmark Brent crude was trading around $36 on March 9, a market holiday in much of the former Soviet Union. Because the government fears unrest, ‘it is impossible to cut social payments, which are almost 65 percent of the state budget’,” Ibadoglu said in an interview. “The only way [to save] is to cut the investment budget and the defense budget. It’s not easy to cut the defense budget […] and the investment budget was already smaller [in 2020] than last year.”

Russia will face the geopolitical effects of the above developments. For the Saudis, their first geopolitical challenges most likely will be that Moscow will consider them as legitimate targets for political and economic sabotage. Kremlin knows well that the Saudis no longer have the Wahhabi leverage they once had in the 1990s to destabilize the North Caucasus. Russia on the other hand, has good relations with Islamic Iran, which has the determination and capabilities to significantly destabilize the Israeli proxy regime in the occupied Arabian Peninsula.

Together, Moscow and Tehran, both of whom have suffered economic pain from Riyadh’s decision to reduce oil prices, will now cooperate a lot closer to destabilize the Saudi regime. This is something which was not on the table prior to Saudis openly waging an economic war on Russia. The Saudis just opened a new front for themselves which they are incapable of handling.

Iran and Russia have developed practical and strong military coordination mechanisms in Syria which they will now most likely transfer to the Yemeni theater. Thus, in the coming weeks it will not be surprising to witness some dramatic activities on the Yemeni front. If Russia and Iran manage to bring in Turkey into this project to eliminate the sectarian card of the Saudis, the British installed regime might soon be witnessing its last months in power.

Some observers might consider our forecast as too dramatic, but it should be kept in mind that by openly waging economic war on Russia, the Saudis have opened the floodgates of retaliation. While Moscow is far better prepared to ride out the current game of chicken than the Saudis, the current situation is still a significant blow to Russia. The Kremlin is unlikely to let such a blow go unanswered.

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