Flexibility and finesse essential to enduring Saudi-Russia oil deal

Russian Energy Minister Alexander Novak. (Reuters)
Updated 07 June 2019

Flexibility and finesse essential to enduring Saudi-Russia oil deal

  • There had been melodramatic suggestions that the panel on global energy markets at Russia’s premier economic gathering would be some kind of high noon stand-off
  • One of the themes of the conference has been the growing closeness of the Saudi-Russia relationship, not just in oil but extending across industrial and financial sectors

ST. PETERSBURG: The message that came across loud and clear from the energy sector gathered in St. Petersburg on Friday was that the entente between Saudi Arabia and Russia on oil supply limits is here to stay, but that all parties to the deal will need to show finesse and flexibility in how it is operated.
There had been melodramatic suggestions that the panel on global energy markets at Russia’s premier economic gathering would be some kind of “high noon” stand-off over production limits, but no such outcome was likely or forthcoming.
The two main architects of the alliance — Saudi Energy Minister Khalid Al-Falih and his Russian counterpart Alexander Novak — have too much respect for each other, as was made clear at Friday’s meeting, for such an outcome.
More importantly, there is consensus between them that the arrangement has served both the global oil industry, and the economies of their two countries, well. Novak said the objectives of the agreement are being met. The alternative of letting the market go the way it did in 2015 is “unacceptable,” said Al-Falih.
In fact, the cuts regime may be more needed now than ever, both men agreed. “Fundamentals are no longer the biggest driver of oil prices,” the Russian said, while Al-Falih pointed out that Saudi Arabia and OPEC+ could only affect the supply side of the equation. “Demand is influenced by macro factors,” like connected worries about economic growth and global trade tensions, while “sentiment and expectation are also outside our control,” he said.
So in an uncertain world, the stability of an OPEC+ deal is essential. But the devil is in the detail, and this has to be pinned down at the coming full meeting of OPEC and non-OPEC oil producers, which both men were adamant would take place soon.
This is where the flexibility will come in. There is a consensus that the supply deal will continue — “rolled over” in the industry parlance — but both men agreed there was still work to be done to get to a definitive arrangement. “We will come to a decision, but it will not be cast in concrete. We can always adjust up or down as the need may be,” said Al-Falih, recognizing that the volatile global economic and geopolitical outlook might affect their calculations in the future.
One of the themes of the conference has been the growing closeness of the Saudi-Russia relationship, not just in oil but extending across industrial and financial sectors, right through to cultural ties. Neither side wants to risk that relationship for the sake of a few dollars a barrel.
The imminent rollover may also be prompted by a recognition that even tougher economic times might be ahead. Daniel Yergin, the oil expert who was also on the panel, was asked what would be needed to resolve China-US trade tensions at the upcoming G20 summit in Japan.
“A miracle,” he replied.


Indonesia hails ‘historic’ $22.9bn mega-investment deal with UAE

Updated 17 January 2020

Indonesia hails ‘historic’ $22.9bn mega-investment deal with UAE

  • Leaders agree initial $6.8bn projects plan, including initiative to build a replica of Abu Dhabi grand mosque in Java

JAKARTA: Indonesia’s business community on Thursday welcomed the UAE’s pledge to pump tens of billions of dollars into a wide range of key sector projects.

President Joko Widodo and his entourage secured an overall $22.9 billion deal during an official two-day visit to Abu Dhabi earlier this week covering the fields of energy, logistics, port construction, mining, and agriculture.

It was also revealed that the delegation brokered a UAE commitment to assist in establishing an Indonesian sovereign wealth fund.

At a bilateral meeting, the Indonesian leader and the Crown Prince of Abu Dhabi Sheikh Mohammed bin Zayed Al-Nahyan witnessed the signing of 11 business accords between the two countries. Indonesia’s Minister for Foreign Affairs Retno Marsudi said the UAE had committed to investing $6.8 billion out of the total agreed spending package into the initiatives.

Luhut Pandjaitan, Indonesia’s chief minister for maritime affairs and investment, described the UAE’s pledges as possibly being “the biggest deals in Indonesia’s history, secured with the UAE within only six months,” referring to the crown prince’s visit to Indonesia last July.

While most lauded the deal, some Indonesian business leaders remained cautious over the long-term prospects for the projects.

Fachry Thaib, head of the Middle East Committee and OIC at the Indonesian Chamber of Commerce, said the schemes could trigger a wide-ranging domino effect through job creation and other business ventures.

“The government needs to have a strong lobbying team that can follow up these deals and push them into investment realizations. We have had such commitments from other Gulf countries, but there was no further lobbying and the pledges were hardly realized,” he told Arab News.

Zaini Alawi, a businessman who exports and imports between Indonesia and the Middle East, said: “It would set a good precedent to attract other Gulf countries to invest here if Indonesia shows it could aptly manage these investment deals.”

Director for Middle East affairs at Indonesia’s Foreign Ministry, Achmad Rizal Purnama, told Arab News that the $6.8 billion commitment from the UAE was only the first phase of a long-term program.

Widodo and the crown prince also witnessed the signing of five government cooperation agreements in health, agriculture, Islamic affairs, and counterterrorism.

Indonesian Minister of Religious Affairs Fachrul Razi said one of the main aspects of the cooperation agreement would be the promotion of religious moderation and raising awareness of the dangers of extremism.

FASTFACT

The UAE has pledged to assist in establishing an Indonesian sovereign wealth fund.

Noting that the UAE had pledged to fund the construction of a replica of the Abu Dhabi grand mosque in Solo, the president’s hometown in Java, the minister pointed out that the grant was part of a commitment by the two countries to establish a mosque that welcomed all people and served a pivotal role in promoting the middle path of Islam.

Riza Widyarsa, a Middle East expert at the University of Indonesia, told Arab News that the cooperation deal could help more Indonesians to understand that not all countries in the Middle East observed conservative Islam. “They are also very active in countering religious extremism and radicalism,” he said.

In addition to the multi-billion-dollar projects, Purnama said Indonesia had also secured the UAE’s commitment to assist in establishing an Indonesian sovereign wealth fund into which the UAE, the US International Development Finance Corporation, and Japan’s SoftBank would inject funding.

And according to Pandjaitan, the UAE had pledged to be “the biggest contributor” to the fund.

The fund would be used to finance Indonesia’s ambitious infrastructure development projects and the construction of its proposed new capital in East Kalimantan, a relocation that has been estimated to cost $33 billion and of which Indonesia could only afford 19 percent.

He said all parties involved would meet in Tokyo soon to set up the structure of the fund and to finalize the plan, which the government expected to launch by mid-2020, a year after the crown prince proposed the idea to Widodo.

“This could be the first time that big capitalists work together in a single project,” Pandjaitan added.