King Salman became on Wednesday the first Saudi monarch to visit Russia.
Relations between the two energy superpowers, Cold War opponents and more recently commercial and political rivals, have often been tepid. Now, with unprecedented Opec cooperation and Russian involvement in the Middle East, both see benefits in deeper engagement.
Ahead of the visit, the two countries decided to set up a US$1 billion joint energy fund, and Aramco signed five memorandums of understanding with Russian firms to cooperate in petrochemicals, drilling, oilfield services and, the two most significant, oil trading and gas. The deal with Litasco, the trading arm of Lukoil, could give Aramco access to Russian-owned refineries in the Mediterranean.
And the accord with Gazprom covers liquefied natural gas trade. Aramco has looked at importing LNG to replace domestic oil for power generation, but there is no particular reason to buy from Russia. And Saudi Arabia does not have an LNG industry of its own.
Russia’s existing LNG facility in the far eastern island of Sakhalin mainly serves the East Asian market while its plant under construction on the Yamal Peninsula will use the “Northern Sea Route” through the melting Arctic to Asia. The Russian energy minister Alexander Novak has raised the possibility that Aramco could invest in a second plant at Yamal, although Aramco has denied this. Gazprom, Rosneft and the trader Gunvor have sold third-party LNG to Egypt and elsewhere from their trading portfolios, but Saudi Arabia could equally tender for imports from any supplier.
In 2015, Saudi Arabia’s Public Investment Fund had already agreed to invest $10bn over five years in the Russia Direct Investment Fund. But even this relatively modest annual amount does not yet appear to have been met. Russia, as an exporter of gas and nuclear technology, has more to gain from selling to the Saudis than vice versa.
So these energy deals mostly look like the usual stuff of such bilateral summits, and their significance will depend on the commercial realities. Both countries are hydrocarbon exporters, both are short of capital given the slump in oil prices, both are trying with some difficulty to diversify their economies. For each China makes a more natural trading partner.
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More interesting is what this visit says about Russia’s success in inserting itself into Middle East affairs. The Soviet Union’s influence was largely expelled from the region during the 1970s, with the Saudis playing a leading role in backing pro-American forces. But in recent years Russia has appeared as a military force in Syria in alliance with Iran and Bashar Al Assad, and a diplomatic player in the Iranian nuclear negotiations, in Libya’s civil war and in Egypt. The Saudis may hope to influence Russia over Iran, but not detach it from Tehran.
In energy, the state firm Rosneft’s loans have been crucial in reviving the Kurdish oil industry and setting up the autonomous region for last month’s independence referendum. Russia has gained further influence over the Turkish gas market by agreeing to construct a pipeline from Kurdistan. Lukoil and Gazprom Neft are developing large projects in southern Iraq, while they, Lukoil and the overseas state investor Zarubezhneft have preliminary deals for oilfields in Iran. Rosneft has bought into Egypt’s giant new Zohr gasfield, and taken 49 percent of the Indian refiner Essar, against reported competition from Aramco. And Rosatom has a variety of deals at different stages to build nuclear power plants in Saudi Arabia itself, Iran, Turkey, Egypt and Jordan.
In the space of a few years, Russia’s direct role in Middle East energy has gone from negligible to significant, although China has advanced even further, while western dominance has evaporated. Saudi Arabia’s upstream sector is not open to foreign equity participation and so it cannot offer any carrots here. So far Russian oil companies have not entered projects in Abu Dhabi or Qatar, but they may be interested in the Qataris’ planned LNG expansion.
Russia has been crucial in pressuring Iran to join the Opec production limits agreement, and to roping together a motley crew of non-Opec countries, including some former Soviet states, to complement it. Russia has gained in oil prices and influence without having to cut production very much. And while broadly supportive of extending the deal beyond March, it has yet to commit.
“Is there really anything in the world that’s absolutely permanent?” answered the Russian president Vladimir Putin, when asked whether Saudi Arabia would always align geopolitically with the US. These Russo-Saudi discussions do not represent some dramatic reshaping of the region’s alliances. But American Middle East policy has veered from undesirable to the GCC under the US president Obama, to incoherent under the current administration. Under any president, the natural trend of an overstretched, more isolationist and more energy self-sufficient US will be to focus limited diplomatic resources more on Asia.
There is still no other power that can replicate American military and political might in the Middle East. Just as they are trying to diversify their economies, so the regional countries are attempting to diversify their allies, gaining support on specific issues from Russia and, in future, from China and perhaps India or other outside players. Russia can be useful to Saudi Arabia, but Moscow has more levers to pull than Riyadh.
Robin M Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
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Financial considerations before buying a property
Buyers should try to pay as much in cash as possible for a property, limiting the mortgage value to as little as they can afford. This means they not only pay less in interest but their monthly costs are also reduced. Ideally, the monthly mortgage payment should not exceed 20 per cent of the purchaser’s total household income, says Carol Glynn, founder of Conscious Finance Coaching.
“If it’s a rental property, plan for the property to have periods when it does not have a tenant. Ensure you have enough cash set aside to pay the mortgage and other costs during these periods, ideally at least six months,” she says.
Also, shop around for the best mortgage interest rate. Understand the terms and conditions, especially what happens after any introductory periods, Ms Glynn adds.
Using a good mortgage broker is worth the investment to obtain the best rate available for a buyer’s needs and circumstances. A good mortgage broker will help the buyer understand the terms and conditions of the mortgage and make the purchasing process efficient and easier.
The bio
Who inspires you?
I am in awe of the remarkable women in the Arab region, both big and small, pushing boundaries and becoming role models for generations. Emily Nasrallah was a writer, journalist, teacher and women’s rights activist
How do you relax?
Yoga relaxes me and helps me relieve tension, especially now when we’re practically chained to laptops and desks. I enjoy learning more about music and the history of famous music bands and genres.
What is favourite book?
The Perks of Being a Wallflower - I think I've read it more than 7 times
What is your favourite Arabic film?
Hala2 Lawen (Translation: Where Do We Go Now?) by Nadine Labaki
What is favourite English film?
Mamma Mia
Best piece of advice to someone looking for a career at Google?
If you’re interested in a career at Google, deep dive into the different career paths and pinpoint the space you want to join. When you know your space, you’re likely to identify the skills you need to develop.
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Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
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Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
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How Alia's experiment will help humans get to Mars
Alia’s winning experiment examined how genes might change under the stresses caused by being in space, such as cosmic radiation and microgravity.
Her samples were placed in a machine on board the International Space Station. called a miniPCR thermal cycler, which can copy DNA multiple times.
After the samples were examined on return to Earth, scientists were able to successfully detect changes caused by being in space in the way DNA transmits instructions through proteins and other molecules in living organisms.
Although Alia’s samples were taken from nematode worms, the results have much bigger long term applications, especially for human space flight and long term missions, such as to Mars.
It also means that the first DNA experiments using human genomes can now be carried out on the ISS.
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
