When Saudi Arabia and Russia signed a cooperation agreement last Monday with regards to global oil markets, the focus was immediately on the gyrations of the oil price. At first there was a sharp rise, only to be followed by a fall with the realisation that the terms of this agreement did not include an immediate cut in production and then a stabilisation of the price when the focus shifted to the OPEC conference in Algeria on 26th September.
The agreement was struck at the recent G20 summit at Hangzhou in China. The Saudi Energy Minister Khalid Al-Falih said the agreement would also encourage other producers to cooperate, while Russian Energy Minister Alexander Novak said the two countries “were moving toward a strategic energy partnership and that a high level of trust would allow them to address global challenges.”
Analysts speculated on what this deal actually meant, many were sceptical whilst others offered some glimmer of hope that perhaps this was merely the first step towards an important shift in the global energy markets. There was also suggestions that this was the precursor to more formal action being undertaken at the upcoming Algeria OPEC meeting.
Cutting through all the rhetoric, relating to the need to stabilise oil prices and the geo-centric focus on the West, the one thing they fail to see is that Saudi Arabia is a key swing nation as we move towards the new paradigm and this is indeed a hugely important step in that process. Once again Russia has played a decisive move in the Middle East, which will drive yet another nail into the coffin lid of Washington’s desire to re-write the geopolitics and geography of that region.
Washington’s attempt to neutralise Russia accelerated in 2014, when they imposed economic sanctions via Ukraine in tandem with driving down the price of oil. Both of these strategies failed to deliver because Russia had already seen what was coming and began to diversify their trade, in non-dollar terms, and were able to weather the storm associated with falling oil prices.
Saudi Arabia clearly saw what was happening with Russia, and how the US were also behind attempts to destabilise Venezuela, Brazil, Syria, Egypt, Libya, Tunisia and perhaps most importantly the failed coup in Turkey. Unsurprisingly, the House of Saud has begun to suspect that a similar attempt to destabilise their regime might be on the cards.
Washington’s attempts to control the emerging markets via oil prices has proven to be yet another abysmal policy failure. Furthermore, they have in the process seriously damaged their own shale oil and major oil corporations as oil prices hover around $40-45 mark.
So what is the real significance of this agreement between Russia and Saudi Arabia?
Firstly, it will enable these nations to stabilise the price in a range which will suit them and ultimately other OPEC nations, whilst seriously damaging the US oil industry. The OPEC meeting in Algeria could well signal the complete re-drawing of the geopolitical alliance amongst the OPEC nations and Russia. Is Russia going to usurp the US and become Saudi’s primary partner in that region? Is this yet another nail in the petrodollar which has been the cornerstone of the Western financial system, since the demise of the gold standard in 1971? Will oil nations begin to trade exclusively in non-dollar terms?
As ever as we move towards the new paradigm, the context of meetings is lost on many analysts and commentators because they are unable to see an end to US hegemony and the US dollar as the world’s reserve currency. History will show us that such seemingly innocuous agreements were in fact critical moves on the geo-political chessboard. In closing, we should take time to reflect on the words of Khalid Al-Falih and Alexander Novak mentioned in this article and what they are really conveying to their intended audience.