Russia may not have been able to strong-arm Saudi Arabia and Iran into crude production cuts in Doha, but the game is not over yet. First of all, the market has long shaken off last weekend’s news and is doing its own thing with WTI price hitting 44 overnight and opening similarly firmly in Asia morning, and secondly, the jury is still out not if but when it’s going to happen.
OPEC may have their scheduled meeting in June, and everybody has been looking at that for a next occasion. But oil diplomacy doesn’t have a fixed schedule. There has been speculation that OPEC will sit down yet again before June. Allegedly, the bigwigs are scheduled on coming together again in Russia of all places, as early as May. Denials were imminent, adding Russia would never cut their production, but we know what that means…
In any case, the chances for the 2 regional foes to be brought to the negotiating table again are high, despite their irreconcilable differences elsewhere. That in itself is keeping oil on the tips of its toes, and the shorts wary. The Saudis need a higher oil price, it seems desperately as they have now resorted to the loan market to stock up liquidity by 10 billion dollars. Reserves keep melting away. Speculation about de-pegging the Riyal is alive and kicking.
So the Kingdom finds itself in a corner lately. Despite Barack Obama’s current visit to Riyad the sense is that the US has limited American engagement in the region if not lost lost interest in it and its most important partner there for many decades. Russia has since made up for that void, by its own cozying up to Riyad and Moscow’s claim to have displaced the US as the major force of influence. But as we know, politics is an exercise in opportunism.
While the Saudis have threatened to liquidate all of their US Treasury holdings if they were named as a culprit in the 9/11 probe, what a dumb and desperate thing to say by the way, they must feel vindicated that Obama is coming to see them. It is not clear how his visit in Saudi Arabia would re-arrange the persisting disequilibrium at all though. No long-lasting commitments are to be expected before a new US president takes reign.
It might all be coming down to a game of perceptions. The US will have no qualms about others in the region and Russia in particular to be nervous that the visit alludes to a revival of the old Saudi alliance. And Riyad will calculate that they can more easily keep at bay a more assertive Moscow that it entertains a practical oil supply-related relationship with at best.
However, the Saudi rulers would be fools to turn away from their recently blossoming Russian proximity. Russia is probably the only power to hold some sway over Tehran. Iran on its part may be emboldened by the fall of the sanctions, but in the end they are two countries in relative isolation that probably depend on each other more than the eye can see. Russia’s leverage with Iran is a key card to be played at the right time.
To be sure, the oil price is only one of the many convoluted issues in the region. But it is important for everybody in the end. Russia and OPEC need to battle this one out, and the Saudis are exposed to essentially Russia and Iran in this fairy existential question. There is nothing the US can or wants to do. So let the Obama show blow over, before the oil realpolitik takes its course again.
Email Disclaimer:
This email is confidential and private. The material is provided to you solely for informational purposes and as a complimentary service for your convenience, and is believed to be accurate, but is not guaranteed or warranted by the author. It has not been reviewed, approved or endorsed by any financial institution or regulatory authority in your jurisdiction. It should not in any way be construed as investment advice and/or -recommendation of any kind, in any market and in any jurisdiction. The views expressed therein are none other than the author’s personal views. He is not responsible for any potential damages or losses arising from any use of this information. The reader agrees to these terms.
