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Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin talk during the G20 summit in Buenos Aires, November 30, 2018.
Last week, OPEC+ members met to announce the biggest cut in oil production since 2020. Russia’s participation in that forum since 2016 means that OPEC is stronger than it has ever been and has more control over oil prices. Yet Russian cooperation with OPEC was a prize Saudi Arabia had sought for a long time.
This alarming news represents the denouement of a century-long struggle between these countries. At the end of it, Saudi Arabia was able to tame Russia. It was by no means easy.
Indeed, at first, the Soviet Union tried to turn Saudi Arabia into a colony. In the 1920s, contrary to their image as die-hard ideologues, Moscow’s envoys were busy pushing Soviet-made goods into the Saudi market and were especially proud that the Saudis agreed to buy refined oil from them and not the British. The Saudis became so dependent on Soviet kerosene as a source of lighting that once, when Soviet ships got delayed, the Saudi capital went dark. This export drive was promoted by the general counsel in Jeddah, Karim Khakimov. A Soviet Muslim of Tatar descent, he was the closest thing the Soviets ever had to Lawrence of Arabia.
Thanks to Khakimov’s efforts, in 1932 King Abdulaziz’s son, Prince Faisal, traveled to the Soviet Republic of Azerbaijan. What the Soviets wanted to do was to show Faisal the oil fields of Baku so he could witness firsthand the achievements of Soviet technology. Faisal was indeed impressed and recommended his father buy Soviet drilling equipment. But King Abdulaziz was unwilling to bite. One year later, the kingdom granted Standard Oil of California its first exclusive oil concession, and the first major Saudi reserves were discovered later in the decade.
Stalin took it badly. In 1937, he had Karim Khakimov, who did so much to develop Soviet-Saudi relations, arrested, and a year later Khakimov was executed. In 1938, the frustrated Stalin closed down the Soviet mission in Jeddah.
Once the Saudis decided to part ways with the Soviet Union and ally with Washington, Moscow and Riyadh saw each other as commercial rivals. During the 1950s and 1960s, Saudi Arabia had to respond to the increasing volume of Soviet oil exports to Europe. These threatened to push down energy prices, which already were quite low. As a result, Saudi Arabia became one of the founders of OPEC, an international cartel of oil producers—but the Soviets did not join or play ball. During the regional Middle Eastern wars in 1967 and 1973, the Soviets undermined OPEC’s price-fixing efforts. While Arab producing countries within OPEC sought to lower oil production and raise prices as punishment for supporting Israel in these conflicts, Moscow sold oil and gas freely to Western Europe on both occasions, enjoying in the process the high prices that OPEC’s decisions brought about.
Relations between the two countries became so tense that in the latter part of the 1970s Saudi Arabia funded Moscow’s enemies in Yemen, Somalia, and, most famously, Afghanistan. The Saudis believed that Soviet involvement in these countries was a naked attempt to take command over maritime choke points crucial to the oil trade. Soviet penetration into the Horn of Africa and Yemen was seen by Riyadh as a drive to control the straits leading to the Red Sea, while the 1979 Soviet invasion of Afghanistan was perceived as a march toward the Strait of Hormuz. Accordingly, during the ferocious geopolitical struggle over control of the Bab al-Mandab Strait between Soviet and Saudi proxies, Saudi Arabia invested $24 billion to buy French weapons for the armies of Somalia and North Yemen, which fought Soviet-backed Ethiopia and South Yemen. From 1979, Riyadh spent $6.7 billion to support the armed resistance against the Soviet occupation of Afghanistan.
Russia now has few willing customers, which means it can no longer shape oil prices.
Soviet imperial overstretch in the late 1970s and early 1980s was unsustainably costly, and heavy losses in Afghanistan sapped morale at home. However, none of these was as harmful to Soviet stability as another Saudi intervention in the global oil market. By the mid-1980s, the Soviet economy was experiencing severe difficulties. For that reason, the profits from oil exports were the Kremlin’s lifeline. Yet in 1986, Riyadh, frustrated by continuous quota-cheating by other OPEC members, decided to pump as much oil as possible to flood the market and bring oil prices down. This was meant to discipline OPEC members, but it also badly hurt the Soviet balance of trade. For the first but not the last time, Moscow responded by acknowledging Saudi dominance in the energy market. During a January 1987 visit by a Saudi oil minister to Moscow, Soviet leader Mikhail Gorbachev declared that his country was willing to help in stabilizing oil prices and toward that end would honor OPEC’s quota decisions by cutting 7 percent of Soviet oil production.
Yet the possibility of a compliant Soviet Union that performed as a loyal member of OPEC was set back when it broke to pieces in 1991. For almost a decade, oil production in Russia was in turmoil, and stabilized only in the late 1990s—when it yet again emerged as a commercial competitor to Saudi Arabia. Despite a promise made in 1999 to honor OPEC decisions, Moscow went back to its favorite game of undercutting Saudi oil. Rapprochement came only after a different Russian invasion, this time of Crimea in 2014, which led Western nations to slap sanctions on Vladimir Putin’s regime. That same year, the fracking revolution in the U.S. caused the price of oil to fall by almost half. This double blow caused the Russian economy to contract by 3 percent the following year. Once more weakened, Moscow needed Riyadh’s help.
In 2015, Saudi Crown Prince Mohammed bin Salman arrived in Moscow for a state visit during which he signed several agreements concerning cooperation in the areas of oil and nuclear energy. One year later, in 2016, Saudi Arabia invited Russia to join a group of 24 oil-producing countries—including OPEC members like itself and nonmembers. This new grouping, which became known as OPEC+, agreed on production cuts that pushed oil prices up and enabled the Russian economy to recover.
From that point onward, Russia strived to create a conservative alliance with Saudi Arabia that relied on the two countries’ shared interests as authoritarian regimes and energy exporters. This affinity became visible in 2018 during a G20 meeting in Buenos Aires. Famously, Putin high-fived bin Salman shortly after the latter was accused of ordering the assassination of journalist Jamal Khashoggi. Other world leaders avoided bin Salman, but the Russian dictator, no stranger to the intimidation of the media himself, chose to embrace him. On his part, the Saudi heir apparent made relations with Moscow a pet project, no doubt calculating that an alliance with Russia would make OPEC stronger.
While the famous 2020 oil price war between these countries seemed to interrupt the burgeoning friendship, the Saudis prevailed in the end. Moscow at first refused to comply with a Saudi demand to cut its production, but then, after the price fell briefly below zero, capitulated.
Putin wanted relations with Saudi Arabia to become an alliance between equals, but this is no longer the case. The reason is his decision to invade Ukraine, which made Russia a diplomatic and economic pariah. It now has few willing customers, which means it can no longer shape oil prices. Ukraine’s shocking and repeated battlefield victories have obliterated Russia’s previous reputation as a formidable military power, which means it can no longer intervene in the Middle East the way the Soviet Union did.
Indeed, the Saudis are currently shrewdly exploiting Russia’s weakness: They buy fuel oil for domestic use from Russia on the cheap so they can export more of their crude, which sells on the world market at much higher prices. They also used the current crisis to purchase $600 million in shares of Russia’s three major energy companies—Lukoil, Rosneft, and Gazprom—thus giving them sway over Russia’s most important economic sector.
Looking back at this century-long relationship, Saudi Arabia has thus far achieved all of its foreign-policy goals. It was able to avoid a dependency on the Soviet Union, played a part in weakening Soviet influence in the Middle East, defanged Russia’s ability to act as a competitor in the oil market, and forced Moscow to comply with OPEC decisions. As a result, Saudi Arabia succeeded in raising OPEC’s market share by 6 percent and making its control over energy prices tighter. Now, leading a consolidated bloc of oil producers, Saudi Arabia can ignore American pressure not to raise prices and reap the benefits of Western Europe’s current predicament.
Bin Salman may someday pay a price for Saudi Arabia thumbing its nose at the U.S., hitherto its most important ally. But for now, its prospects look good.
