Anybody who watched the body language at the recent Russian Energy Week forum in Moscow could be left in little doubt: The Russian Federation and Saudi Arabia feel an increasing spirit of commonality of interest in strategic, energy and economic ties that is being cemented by the visit of President Vladimir Putin to Riyadh.
It was there in the obviously good relations between the two countries’ energy ministers, Abdul Aziz bin Salman and Alexander Novak; it was present too in the enthusiasm with which the Russian Direct Investment Fund’s chief executive, Kirill Dmitriev, spoke about the joint financial investments involving his organization and the Kingdom’s Public Investment Fund.
It was also there in the painstaking preparations in the Saudi capital for the presidential visit.
The increasingly cordial entente between Russia and Saudi Arabia was born out of the hard economics of the energy world.
As the US began to fully exploit its shale reserves, the other two big producers found an identity of interest in the needs to counterbalance the new crude power of the Americans.
The volatility of the oil price since the global financial crisis demonstrated the need for preventive action.
The main reason for the regular falls, followed by only partial recovery, was that the world was awash with crude as American shale production took off.
Inventories were full, but it was not in the Americans’ interests to call a slowdown to production. They were grabbing significant market share and on their way to becoming energy self-sufficient for the first time in decades.
Both Russia and Saudi Arabia were in a difficult position. The economies of the two countries are far more reliant on energy revenue as the generator of growth than the more diversified American economy.
Diversification became a mantra for Russia as much as it did for Saudi Arabia, but the key to that was to maintain crude prices as high as possible to bridge the gap until the non-oil sector could make up ground.
To do that, the glut in global inventories had to be drained. The result was the historic decision to form what was termed then the “Vienna Alliance” but which has since been dubbed Opec +.
Russia, not a member of Opec, agreed to production cuts alongside Saudi Arabia, and agreed supervision and policing methods — not always fully observed by other oil producers — to make the cuts meaningful.
Both sides agree that the measures have helped to prevent the wild swings in price of previous years, and are draining the inventories. Some oil experts believe Russia and Saudi Arabia could go further still by institutionalizing the arrangement in a new super-Opec.
The two partners learned a lot about each other during the Vienna negotiations, and that encouraged them to look beyond the global oil market.
The new Saudi-Russian business partnership is not just about energy. In the same year as the the Vienna deal, the RDIF and PIF set up the Russia Saudi Investment Fund, with $10 billion of capital, to channel investments into infrastructure and other big projects in each others’ countries.
Priority sectors were food and agriculture, consumer, health care, pharmaceuticals, technology and infrastructure. Some $2.7 billion of that has been invested, RDIF’s Dmitriev said at the Moscow event, hinting that there were some bid deals around the corner.
One transaction that will likely be clinched during the Riyadh visit is a big investment by Saudi Aramco, in a consortium including RDIF and PIF, in the leading Russian oil-pumps manufacturer, Novomet. Further deals are expected in petrochemicals and agricultural goods and other sectors while Putin is in Saudi Arabia.
The investment process will be a two-way street, with Saudi cash going into big projects in the country, such as a new ring road around congested Moscow, and Russian infrastructure and transport skills being deployed in the Kingdom to build bridges and, possibly, railways.
The Russians, big grain exporters, are also eyeing opportunities in agricultural products, the Kingdom having relaxed some of its import restrictions recently.
It is a measure of the high regard in which the RDIF connection is held that Dmitriev was recently honored by being made a member of the Order of King Abdul Aziz by Crown Prince Mohammed bin Salman, only the second Russian to receive the Kingdom’s highest award.
The first Russian recipient was President Putin himself.
• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai