NEW YORK--Saudi Arabia and Russia are working on a historic long-term pact that could extend controls over world crude supplies by major exporters for many years.
Saudi Crown Prince Mohammed bin Salman told Reuters that Riyadh and Moscow were considering a deal to greatly extend a short-term alliance on oil curbs that began in January 2017 after a crash in crude prices.
“We are working to shift from a year-to-year agreement to a 10 to 20 year agreement,” the crown prince told Reuters in an interview in New York late on Monday. “We have agreement on the big picture, but not yet on the detail.”
Russia, not a member of the Organization of the Petroleum Exporting Countries, has worked alongside the 14-member group during previous oil gluts, but a 10 to 20 year deal between the two would be unprecedented. Top OPEC producer Saudi Arabia recruited Russia and other non-OPEC countries to help drain oversupply when oil prices collapsed to below $30 a barrel in 2016 from over $100 in 2014. Crude has since recovered to $70 but fast-rising output from U.S. shale producers has capped prices.
“This is all about whether the arrangement is a short-term expedient to deal with this particular crisis in the oil market, or whether it reflects a realignment in world oil,” said oil historian Daniel Yergin, vice chairman at consultancy IHS Markit. “OPEC countries want to find a way to institutionalize this relationship rather than to have it be a one-shot deal.”
Robert McNally at consultancy Rapidan Energy Group said Riyadh wanted help in breaking the boom-bust cycles that characterize oil markets by capping crude on the upside as well as by helping lift low oil prices. “History shows that without a long-term, powerful, competent coherent, disciplined swing producer in the oil markets ... you get space-mountain oil prices. Wild volatility of the sort we have seen in the past 10 to 15 years and that Saudi Arabia and Russia do not want to see again,” McNally said.
He said that would require Russia to join Saudi in building spare production capacity to use when prices rise too much.
A long-term pact between Moscow and Riyadh would effectively co-opt Russia to the Saudi-led OPEC cartel while strengthening Russia's hand in the Middle East where the United States has long been the dominant super-power. News of the potential oil alliance came at a time when the two have been working to cement an economic relationship despite being at odds over the conflict in Syria, where they back opposing sides. Riyadh supports rebels fighting Syrian President Bashar al-Assad’s army, while Russian and Iranian forces have backed Assad – meaning that Russia effectively sides with Iran, Riyadh’s regional arch-foe.
