Putin electrifies the world oil market
M. K. Bhadrakumar
Oct. 10, 2016
The dynamics of the post-July Russian-Turkish rapprochement was expected to be the focal point of President Vladimir Putin’s visit to Istanbul on Monday where on the sidelines of the World Energy Conference he was slated to hold a one-on-one with his Turkish counterpart Recep Erdogan, third in a row in as many months. But in a longer term perspective, Putin’s speech at the Istanbul conference as such stole the limelight, where he declared that Russia is ready to join the OPEC’s proposed cap on oil production, which the cartel hoped to finalise at its meeting next month.
Putin said, “in the current situation we think that [an oil output] freeze or even an oil production cut is likely to be the only right decision to maintain the stability of the global energy sector… Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join.” (Reuters)
OPEC had decided last month at its meeting in Algiers to limit production to a range of 32.5 million to 33 million barrels a day to accelerate the “on-going drawdown of the stock overhang and bring the rebalancing” in crude markets forward. (See my blog OPEC takes back driver’s seat in oil market.)
Putin’s remark already had an electrifying effect on the oil market. Brent crude, the international benchmark, increased as much as $1.47 to $53.50 a barrel. This is the highest level in the past one year-period. West Texas Intermediate, the US marker, rose $1.46 to a high of $51.31 a barrel — the highest since June.
The Saudi Energy Minister Khalid Al-Falih, who is attending the Istanbul conference, responded that he is now “optimistic” about reaching a deal to determine the output caps at the forthcoming OPEC meet on 30 November. He said, “It is not unthinkable that we could see $60 by year-end.”
Clearly, there has been a dramatic shift in the Russian and Saudi strategy away from unfettered oil production. Equally, what emerges is a high level of coordination between Moscow and Riyadh. An ‘axis’ is in the making, with Russia elbowing out the US gradually and replacing it as Saudi Arabia’s strategic partner in Middle East’s energy politics. The two countries have begun steadily building up the momentum created at Hangzhou in September, and, in retrospect, they have covered a fair amount of ground, belying the lampooning by western critics that Russian-Saudi cooperation in regard of the world oil market could never happen. (CNBC)
Oil was central to the geopolitics of the Middle East in the last century and the Russian-Saudi collaboration is bound to have wider ramification in the regional alignments. For a start, Russia has thrown the hat in the ring as a ‘Middle Eastern power’ in a way that was unthinkable during the Cold War era. Interestingly, Russian Deputy Defence Minister General Nikolay Pankov told the Federation Council (upper house of parliament) in Moscow today that Russian military plans to expand its supply base in Tartus in Syria into a fully-fledged permanent naval base. Tartus has long been used since 1977 but only as a facility to resupply Russian warships during Mediterranean Sea missions.
General Pankovsaid, “We are going to have a permanent Navy base in Tartus. We have prepared the paperwork, which is now being reviewed by other government agencies. The documents are pretty much ready, so we hope to submit them for ratification soon.” The upgraded base would have comprehensive defense systems and other capabilities, such as docking facilities, command and control system, air defense system and anti-submarine defense capabilities.
Significantly, Moscow does not see any contradiction insofar as Saudi Arabia is arrayed against the Russian-Iranian axis in the Syrian conflict. It shows a high level of confidence in Moscow’s multi-vector regional diplomacy and an overall Russian assertiveness to face up to the traditional western hegemony in the Middle East. And, all this, indeed, against the backdrop of gathering storms in the Russian-American relations. See an editorial by the Chinese Communist Party newspaper Global Times whose prognosis is that Russia and the US are “very close to a direct conflict or a public proxy war” in Syria — Moscow-Washington tension may endure.
To be sure, Tehran will be closely watching the Russian-Saudi collaboration over OPEC production cap. Iran is a full-fledged player in OPEC, too. Iran appears to have been banking on Russia to ultimately showing reluctance to join any deal to cap oil production. Conceivably, Putin’s statement in Istanbul will need time to sink in. Iran’s top priority is to regain its original share of the world oil market before the western sanctions clicked in.
In a broader sense, no doubt, the growing Russian-Saudi collaboration (and the establishment of a permanent Russian base in Tartus) makes the Iran-Russia relationship somewhat more complex — and, of course, much more fascinating to watch — than it already is. (Read a recent piece in the Iranian media titled Is Moscow planning to supplant Iranian influence in Syria? Interview with Mark Katz.)
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