It is the same old story of utilizing hydrocarbon wealth to expand political power.
The Tsar is back. Vladimir Putin assumed the office of the Russian presidency that he left four years ago.
He was not in the shadow, nor was he just in the loop or warming the seat of the prime minister while waiting anxiously for the top post.
Rather he was there at the center taking actions on various levels — high among them were issues dealing with economy.
In fact, he chaired the last meeting at the White House, where the executive branch of the government sits, to approve new tax increases on natural gas.
An incoming Putin spoke about “reborn Russia” and “the return of dignity for a great nation.”
For that to happen, he needs high oil prices to continue and end to the euro zone crisis, which is threatening his nearby market, so that he will be able to continue Russia’s economic growth.
The four years he left office saw an economic growth that needs an extra effort to keep.
Hard currency reserves, for instance, jumped to occupy the fourth position worldwide, the number of Russian billionaires in Forbes list rose from eight in 2001 to 96 this year, and the poverty rate was cut down by half.
But all that was achieved through high oil prices where the Russian crude Ural managed to make a 5-fold jump compared to the last Putin era between 2000-2008.
Now economists estimate that Russia needs oil prices to hover around $117 a barrel to enable it go ahead with its plans.
Whenever oil is mentioned Saudi Arabia, the last resort in the oil market jumps in.
Russia is the other oil tycoon with its sheer production volume of 10.36 million bpd that puts it at the top, though in terms of exports Riyadh is unparalleled.
That is not the only form of similarity. Hydrocarbons occupy a growing percentage in the Russian economy amounting to two thirds of all export income, half of the federal budget and close to 20 percent of the GDP.
For the Kingdom, percentages are even higher.
Yet there are other remarkable differences — oil and gas to Russia is a way to restore and strengthen its role at world stage.
It is also a UN Security Council permanent member with a veto power, but its international role has been eclipsed by the un-orderly downfall of the Soviet Union, that Putin hopes Russia to inherit its role.
Saudi Arabia, on the other hand, though recognized as an oil superpower, is not looking for a global political role to play. Rather, it is using its oil policy as a way to balance the market, benefit both consumers and producers and go as far as keeping an excess capacity between 1.5-2 million barrels a day to ensure market stability. This is a major financial burden.
Also given its sheer size of proven reserves its ultimate goal was and continue to be moderate oil prices to keep use of the hydrocarbon ongoing, benefit both consumers and producers and at the same time encourage research and work on commercially viable energy alternatives. That is why Riyadh still thinks current oil prices that hover around $100 a barrel are still high despite its efforts to pump around 10 million bpd and a fleet of tankers carrying around 80 million barrels to be able to respond to any supply shortage anywhere in the world in a short time.
That price range favored by Riyadh may not look suitable for Moscow, which wants to feed and finance its national ambitions as well as meeting growing demands of its expanding middle class.
To what extent the two capitals can cooperate? That depends on the developments in the oil market and whether there will be some tightening or that the euro zone will have its impact, sending major western economies into recession again.
Still the two countries would like a fair price for their oil, though the question remains on the actual definition of the word ‘fair.’
Yet with the growing tension and western sanctions on Iran over its disputed nuclear program, the two countries could be called on to provide additional supplies to the market.
So in a way it looks like a race between economy and politics at the regional and international level on one hand or between indigenous and national policies on the other.
Russia has tried some kind of coordination with OPEC at one point, but it did not exceed generalities, keeping for itself all necessary decisions as far as its production and pricing policies are concerned. The aim was to benefit from any turn of market for its own interest. It remains to be seen whether the new Putin era will push that cooperation to more than just the lip service it used to be.
— Alsir Sidahmed ([email protected]) is media consultant, trainer and freelance journalist
Lip service or some substance
