Saudi Arabia looks for better ties with Russia

Saudi Arabia's relations with Russia could enter a new phase of warmth and cooperation when Saudi Crown Prince Abdullah visits Moscow next September, the first ever by a Saudi ruler. The historically cold relations began to warm up when the Soviet Union collapsed because of the Saudi relationship with the United States and the kingdom's support for the Islamic resistance in Afghanistan.
The Sept. 11, 2001 terrorist attacks on US cities and the ouster of Iraqi President Saddam Hussein in April helped push the two nations to re-evaluate this historically tense relationship. During Prince Abdullah's visit, the two sides are expected to translate this thaw into closer economic ties, particularly in energy development projects.

The de-facto ruler of the oil-rich kingdom is also expected to sign an agreement for economic cooperation when he meets Russian President Vladimir Putin. Abdullah's visit to Moscow was initially scheduled in April, but was postponed due to the war in Iraq. It was rescheduled last May when Saudi Foreign Minister Prince Saud al-Faisal visited Moscow.
As the custodian of the Islamic faith, Saudi Arabia was reluctant to establish close relations with the former communist regime in Moscow. But despite the collapse of the Soviet Union -- and the end of the cold war -- more than a decade ago, their economic ties remained weak.

The volume of trade between Russia and Saudi Arabia over that period did not exceed $ 130 mm. Russia was also totally deprived of any share in Saudi Arabia's massive foreign investments while the volume of joint projects was as low as $ 3 mm although the two countries have significant influence in the Middle East and the international oil market.
Now Russian companies hope to share Saudi oil and gas projects with their US counterparts. They hope to win joint projects with the government's shareholding company, Gas Chrome, in Saudi gas fields and aspire to enter in joint ventures with Saudi companies abroad. They could also have a fruitful cooperation in refining crude oil and selling oil products in the former Soviet republic and Eastern Europe.

It is widely believed that the Sept. 11 attacks on New York and Washington helped convince the Saudis that they need to open up to the Russians. They were particularly upset with, what they saw as, a scathing US campaign against them over al-Qaeda’s presence in the kingdom. The terrorist network, run by a Saudi national Osama bin Laden, is the prime suspect in the 9-11 attacks.
The collapse of the Baath regime in Iraq and the increasing isolation of its two other traditional allies, Syria and Libya, forced Moscow to look for new friends in the region too. With its rich oil resources and strong influence in the Arab and Muslim worlds, Saudi Arabia was an attractive alternative.

Before the Iraq war, Russia blamed Riyadh for allowing Saudi and other Gulf Islamic groups to finance separatists in Chechnya. The Russians also complained that Saudi Arabia was spreading its Wahhabbist ideology, an extremist interpretation of Islam, in their backyard.
Better relations with Saudi Arabia will also allow Russia to improve its ties with other oil-rich Gulf states, which are closely allied with the Saudis. They too are opening up to Russia.

There's much room for economic cooperation between Russia and the Arab world. In fact, today the volume of trade between Russia and the Arab world is lower than what it was during the Soviet era. Last year, the volume of trade between Russia and the Arab countries was estimated at $ 5.5 bn, including $ 2 bn with Iraq. The trade with Saudi Arabia was relatively small, around $ 120 mm.
During 1983-1990, the Soviet Union exported $ 55 bn worth of arms and military vehicles to the Arab countries. Iraq had the largest share of $ 24 bn. Syria shared $ 11 bn and Libya $ 7 bn.

Russia's investments in Saudi Arabia, until the first quarter of 2002, did not exceed 0.003 % of the total foreign investments in the kingdom. Both Russian and Saudi diplomats are unhappy withthis situation and want to redeem it. Both depend largely on oil revenues, which constitute 70 to 80 % of Saudi's Arabia overall revenues and between 25 to 30 % of Russia's.
Saudi Arabia's oil reserves are estimated at more than 261 bn barrels, the equivalent of 25 % of the total oil reserves in the world. With one-fourth of the world's proven oil reserves, Saudi Arabia is likely to remain the world's largest oil producer for the foreseeable future. During 2002, Saudi Arabia supplied the United States with 1.5 mm bpd of crude oil, or 17 % of US crude oil imports during that period.

In 2001, Russia's net oil exports rose for the seventh consecutive year, reaching 4.91 mm bpd in net crude oil and oil product exports. Russia is now the world's second largest oil exporter, behind only Saudi Arabia. By 2003, Russia's net oil export is projected to increase to 5.4 mm bpd.
With oil export revenues making up around 90-95 % of total Saudi export earnings, 70-80 % of state revenues, and around 40 % of the country's gross domestic product, Saudi Arabia's economy remains, despite attempts at diversification, heavily dependent on oil.

Crude oil exports are a key source of income for Russia too, as revenues from exports provide approximately 25 % of the Russian government's income. It is estimated that every $ 1-per-barrel price increase in the price of Russia's Urals Blend benchmark brings in almost $ 1 bn in extra earnings.
On the other hand, a decrease in oil prices adversely impact Russia's budget. While Russia experienced a windfall in extra oil revenues in 1999 and 2000 when world oil prices were relatively high, the drop in world oil prices in late 2001 cut into Russia's revenue intake.

Given the situation, observers say that the two countries would be better off cooperating with each other instead of competing. It will help improve their oil-sensitive economies and will increase their influence in the international oil market as well.
So far, their efforts to improve relations do not worry Washington. After the collapse of the Iraqi regime, Russia's position in the region has been weakened considerably. Washington holds the reins of the peace initiative in the Middle East and has no apprehensions about its strong strategic, political and military ties with Saudi Arabia. The chance of a possible military cooperation between Saudi Arabia and Russia are almost non-existent, even after the transfer of US troops from Saudi Arabia to Qatar.