Analysis: The sovereign wealth funds of both countries are forging ahead in solidifying ties
Reticence of western firms in wake of Khashoggi killing drives Russia and Saudi Arabia closer
The reticence of western firms to attend an investment conference in Riyadh this week in the wake of the killing of Saudi journalist Jamal Khashoggi is improving relations between Saudi Arabia and Russia.
The kingdom will not penalise western banks who pulled their senior executives from attending the three-day Future Investment Initiative held in Riyadh and opted to send lower-tier representatives with the aim of preserving business ties with the kingdom, said Saudi Arabian Monetary Authority's governor Ahmed Al Kholifey. "We deal in a professional manner," Mr Al Kholifey told Al Arabiya on Wednesday.
It was telling that on the eve of the event, Saudi Arabia’s energy minister Khalid Al Falih gave a thorough interview to Russia’s state-run news agency TASS in which he said the kingdom does not plan to impose an embargo similar to a previous action in 1973 and is concerned about limited spare oil capacity to cope with disruptions.
“The evolution of the relationship was really only brought about in the initial meeting between Crown Prince Mohammed bin Salman and Vladimir Putin,” said Theodore Karasik, senior advisor at Washington-based consultancy Gulf State Analytics. “These two leaders have an affinity for each other that emphasises the future trajectory of the Russian-Saudi relationship. We are now seeing this relationship bloom because of the American reaction to the Khashoggi affair.”
The show of Russian executives at FII, including members of Russia’s sovereign-wealth fund, the Russian Direct Investment Fund which said it “strongly supports transformative and historical reforms in Saudi Arabia” and will "continue close investment cooperation" with the kingdom exemplifies how relations between Moscow and Riyadh have warmed. This is happening despite being on opposite sides when it comes to dealing with the seven-year conflict in Syria and Iran.
The RDIF and the Public Investment Fund (PIF) formed a partnership in 2015 under which Saudi Arabia’s sovereign wealth fund agreed to invest $10 billion. The partnership covers areas including infrastructure and agriculture.
Even before Khashoggi’s death, Riyadh and Moscow, two of the world’s largest crude producers, had set aside their differences when it came to stabilising oil markets by agreeing on production cuts. That cooperation over that past two years helped push oil prices to above $80 a barrel after a three-year slump that saw oil prices drop to below $30 a barrel in the first quarter of 2016. The summit in Riyadh this week appears to build on closer ties.
In what clearly is the latest show of cooperation to come out of the FII, Mr Al Falih said on Thursday Saudi Arabia is set to acquire 30 per cent of Russia’s liquefied natural gas project in the Arctic, as the world’s biggest oil exporter looks for alternative sources of gas.
The Arctic LNG (liquefied natural gas) project being developed by Novatek, Russia’s largest gas producer, is estimated to be worth $25.5bn and already has France’s Total as a partner with 10 per cent interest. The scheme is the second such LNG project in the Arctic for Russia, which has signed several preliminary agreements with Japanese, Chinese as well as Saudi partners. Russia has the largest proven reserves of gas, accounting for 18.1 per cent of world total, according to the latest BP Statistical Review of World Energy.
For its part, Russia’s sovereign wealth fund has also said its keen on investing in the kingdom’s $500bn futuristic Neom project as well as participating in Saudi Arabia’s privatisation plans, its chief executive said on Thursday.
“We are interested in [Neom] and we will be participating in that for sure in many ways,” Kirill Dmitriev the chief executive of RDIF told reporters on the final day of the FII summit. “We believe LNG is certainly an area of cooperation between Saudi Arabia and Russia. And we will see some big announcements of projects in this area.”
The RDIF as part of its partnership with the kingdom is keen to solidify itself as a supplier of grain, Mr Dmitriev said.
“We can make major breakthrough in agriculture between Russia and Saudi… we believe we can be one of the major suppliers of grain to Saudi Arabia,” he said.
This month the crown prince said the kingdom intends to privatise more than 20 companies at the start of next year while also prioritising the merger of its oil interests ahead of the anticipated public flotation of Saudi Aramco as early as 2020, or 2021.
The RDIF is keen to take part in Saudi Arabia’s infrastructure projects such as the construction of railroads in tandem with the privatisation of Saudi Grains Organisation, the kingdom’s state-owned mills and also desalination projects where Russia can deploy its technology, said Mr Dmitriev
“We also have great experience in infrastructure…and we want to be one of the partners for the construction of Saudi railroads,” he said.
RDIF, which is also a partner with Mubadala Investment Company in a $2 billion fund investing in Russia, could co-invest in Saudi Arabia with the Abu Dhabi strategic firm.
“There are a number of projects where us and Mubadala can invest jointly in Saudi Arabia and we have discussed some projects specifically in the technology sector,” said Mr Dmitriev.
Times may be difficult but the kingdom has made clear it “knows who is supporting the advancement of Vision 2030 and specifically the growth of the PIF to its greatest advantage,” said Mr Karasik. “That advantage means energy relationships and other forms of investment including joint ventures in a number of different fields that will boost the interactivity between both countries.”
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