Analysis |

New U.S.-Russia-Saudi Oil Alliance Could Also Have Implications for Israel and Iran

A reported deal between Putin and the Saudi crown prince means they will have members of OPEC over a barrel when they meet in Vienna this weekend – but Jerusalem will be an interested spectator as well

Anshel Pfeffer
Anshel Pfeffer
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Saudi Crown Prince Mohammed bin Salman, left, FIFA President Gianni Infantino and Russian President Vladimir Putin watching the match between Russia and Saudi Arabia at the 2018 soccer World Cup in Moscow, June 14, 2018.
Saudi Crown Prince Mohammed bin Salman, left, FIFA President Gianni Infantino and Russian President Vladimir Putin watching the match between Russia and Saudi Arabia at the 2018 World Cup.Credit: Hassan Ammar/AP
Anshel Pfeffer
Anshel Pfeffer

Saudi Crown Prince Mohammed bin Salman didn’t look like someone whose national team was losing 5-0 to Russia last Thursday. The broad smiles as he sat beside Russian President Vladimir Putin in the VIP box at Moscow’s Luzhniki Stadium indicated the opening match of the World Cup was just an excuse for their meeting.

According to briefings by Russian officials after the crown prince had left Moscow, he and Putin had agreed on a joint policy worth more than any sports trophy.

The two governments – also two of the world’s major energy producers – had reportedly agreed to “institutionalize” the relationship between Russia and the Organization of the Petroleum Exporting Countries (OPEC). Does this include all the OPEC members who are meeting in Vienna on Friday? Almost certainly not.

OPEC exists in theory to ensure its members’ market share of the global energy market and to try and boost oil prices, ensuring their major source of income remains lucrative. But it depends on consensus and coordination between the members. And geopolitics can intrude – in this case, the deepening enmity between two of the major oil producers: the Saudis and Iran.

In 2016, following a prolonged dip in oil prices (which saw the price of a barrel of crude drop to below $30), OPEC’s 14 members – along with OPEC Plus, a second group of associated nations, including Russia – agreed to cut back production. Along with the rise in global financial activity, this has gradually pushed oil prices back to over $70 a barrel.

Now, though, some nations – led by the Saudis and Russia – are calling for an increase in production. They are losing market share to U.S. shale oil producers and argue that, since demand is currently high, putting more oil on the market will not dramatically affect prices. They calculate that any dip in prices will be offset by the increase in production.

But not all OPEC members are capable of boosting production.

Iran, about to come under stiff new sanctions from the Trump administration, is already losing orders worth hundreds of thousands of barrels. In Venezuela, production is already plummeting due to political turmoil and the economic meltdown under the Maduro government, which also faces U.S. sanctions. For both countries, lower oil prices will only compound their financial woes.

Iran and Venezuela – along with Iraq and Libya, who are also suffering production problems – have resolved to resist the Russian-Saudi plan at Friday’s Vienna meeting. But Putin and Crown Prince Mohammed’s meeting at the World Cup heralds a new alliance they will be powerless to oppose.

Does this mean the end of the Russian-Iranian alliance cemented on the battlefields of Syria?

In the Israeli intelligence community, there have been two views on the strength of the alliance between Moscow and Tehran, and the possibility of driving a wedge between them. Skeptics feared that Putin saw Iran as a strategic partner, one that would continue working with Russia to expand its presence in the region – which in turn would allow Iran to realize its grand “Shia Crescent” design: a land corridor controlled by its proxies from Iran all the way to the Mediterranean.

The opposing view saw the Iran-Russia nexus as nothing more than a tactical and temporary arrangement that would last only as long as Russia needed “boots on the ground” in Syria, in the shape of Shi’ite militias fighting on the side of its client, the Assad regime. With Assad’s rule ensured, they argued, Russia’s interests would begin to diverge from those of Iran.

This school of thought is now being vindicated.

On May 9, Prime Minister Benjamin Netanyahu was Putin’s guest of honor at the Victory Day Parade in Moscow. That was the signal for Russia’s support for Israeli demands that Iranian-supported troops not be allowed close to Israel’s border with Syria. The support was emphasized by Russia’s silence over Israel’s attacks on Iranian positions in Syria.

This was hardly the conduct of an ally – unless Putin was signaling that although Iran may be its tactical ally, as far he is concerned Israel is an ally as well, and perhaps one of even greater strategic value.

This month, it was the crown prince’s turn to be welcomed by Putin in Moscow. It was another ominous signal to the Iranians that they may have served their purpose and are not at the center of Russia’s strategic interests.

Putin is determined to restore Russia’s superpower status. The crown prince, preparing for what he believes will be long decades on the Saudi throne, is eager to establish his kingdom’s status as the preeminent power in the region. Both men plan to use their energy assets as a tool in building up geopolitical power, while at the same time pushing long-term plans to reduce their economies’ dependability on oil.

For both of them, the joint agreements of OPEC are now more a hindrance than a help. MBS also sees Iran as a mortal enemy and rival for influence. A month before Netanyahu was in Moscow, Crown Prince Mohammed was on a thee-week charm offensive in the United States, which also included meetings with Jewish-American organizations.

The crown prince is happy to take part in President Donald Trump’s much-vaunted Middle East peace plan, which will have the endorsement of the Saudis and other Sunni regimes. No one expects the plan – which has been rejected in advance by the Palestinians – to get anywhere, but MBS has much bigger targets in his sights. A three-way deal between the Saudis, Russia and a consortium of U.S. oil producers would be more advantageous to him, and Putin, than the old OPEC framework. It would also push Iran even further into a corner.

For Putin and Trump, there are both economic and political benefits for such an alliance between the world’s three largest oil producers. It would allow them to ensure their market shares, while keeping gas prices at the pump – so important to American voters – at a reasonable level.

A U.S.-Saudi-Russia axis could increase the Trump administration’s economic clout, especially when it is anticipating trade wars with Europe and China. It would also lock the United States into a new power partnership, separate from its traditional alliances in NATO and with the European Union, fulfilling Putin’s long-cherished dream of undermining the postwar Western alliances that prevailed over the Soviet Union. Now it seems he wants to undermine OPEC as well.

The losers from such a new alliance would be the other OPEC members, especially Iran and Venezuela, the EU – which is already weakened by internal division and political arguments among its members – and the rising Far Eastern powers with their oil-reliant economies.

Netanyahu could also be one of the winners, with Iran further weakened and the EU, which is still trying forlornly to keep the Iran deal alive and remain involved in the Israeli-Palestinian diplomatic process, further marginalized.

OPEC’s meeting this weekend in Vienna could have much wider implications than just future oil prices.

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