As in the political sphere, so in energy. With two recent deals, today’s Russia has influence in the Middle East that the former Soviet Union did not have since the 1960s.
A fundamentally weak state has preyed on the indecision and miscalculations of its opponents.
The first success came on November 30, as Russia cajoled and corralled members of Opec to conclude a deal on limiting production.
President Vladimir Putin reportedly met Prince Mohammed bin Salman, Saudi Arabia’s deputy crown prince, and phoned Hassan Rouhani, the Iranian president, to reach an agreement.
Further consensus was reached on Saturday for non-Opec nations to join the production cut. Perhaps with some encouragement from the Kremlin, Azerbaijan volunteered a 35,000 barrel per day (bpd) drop and Kazakhstan, 20,000 bpd.
The Russian economy has been badly hit by the downturn in oil prices and the imposition of sanctions. The collapse of the rouble may have cost ordinary Russians their beach holidays in Ras Al Khaimah but it has cushioned much of the blow to the country’s budget and oil industry.
As after the last currency collapse in 1998, Russian oil production has become highly cost-competitive.
According to the International Energy Agency, Russian production was set to increase by 200,000 bpd to 11.48 million bpd next year, the world’s highest, larger than Saudi Arabia, which has to cut output by 4.6 per cent.
This has given Alexander Novak, the energy minister, the room to promise a freeze, equivalent in his view to Opec’s production cuts. By cutting theoretical barrels, Russia gains revenues on every actual barrel and bails out its leaky economy.
The second success was sealed on Wednesday. The state oil giant Rosneft, headed by close Putin ally Igor Sechin, has built up a large debt burden by acquiring TNK-BP for US$55 billion in 2013, midsized Russian producer Bashneft for $5.2bn and 49 per cent of Indian refiner Essar for $6.5bn in October.
To cut its budget deficit, Russia needed to sell a 19.5 per cent stake in Rosneft before the end of the year.
Now trader Glencore and the Qatar Investment Authority (QIA) have teamed up to buy the shares for €10.2bn (Dh39.5bn), of which they are putting up only €300 million equity each.
There is clearly more to this deal than meets the eye. The Italian bank Intesa Sanpaolo, funding the deal, is relatively small and must be laying off much of the financing to other institutions.
It is clear what Glencore gets for its investment – an additional 220,000 bpd of Rosneft crude to trade, strengthening its position against rival Trafigura.
QIA’s benefit, beyond the purely financial, is less obvious. It seems inconceivable that any bank would lend up to 95 per cent of the price, secured only by Rosneft stock, so although the loan is said to be “non-recourse”, it must be hedged or guaranteed in some way.
The US government is examining the Rosneft deal for non-compliance with sanctions imposed on Russia. But a presidential administration that ignores Russian war crimes, a Republican party that condones foreign manipulation of its elections and a European Union that accepts invasion of one of its neighbours will surely wave this deal through.
The incoming administration seems likely to relax the sanctions in any case.
Russia needed some energy victories after years in which the rise of US shale, falling European gas demand and a series of strategic pipeline blunders have badly dented its position in its core markets. The Middle East seemed to be an unlikely arena for success – the Russians cannot compete with western oil companies for technology, nor the Chinese for financial firepower.
But this year, even as Russian bombers fly over Aleppo, the Russian and Saudi oil ministers sit down as equals.
Robin Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis.
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