Complex Made Simple

7 things the world is watching during Saudi King’s maiden visit to Russia 

As Saudi Arabia’s King Salman embarked on a historic four-day visit to Russia, the whole world is keenly following the developments. Pursuing its path towards strengthening its clout in the Middle East region, Russia is playing every card to be a perfect host to King Salman, who has become the first reigning monarch to visit Russia.

Now as the two world leaders – King Salman and Russian President Vladimir Putin – will meet by keeping all past differences aside, Moscow will certainly take up this opportunity to cement its place as a major independent force in the Middle East, capable of shaping worldwide oil prices and also the upshots of ongoing regional conflicts in Syria and Iraq.

Notably, couple of years ago, the possibility of any Saudi monarch visiting Russia was too bleak as both nations were up in arms against each other for decades over various regional issues. Therefore this visit of King Salman is expected to script a new beginning in the region.

Moreover, besides political equations, this visit will give a major flip to bilateral business as around 100 Saudi businessmen are accompanying the King to Moscow and a $1bn joint oil investment fund is expected to be agreed.

Read: New Saudi bond issue to cover debt

 AMEinfo looks at seven possible outcomes of this historic visit:

 1 – Narrowing the differences

The leaders and high-level representatives are expected to tackle what has positioned them on opposing sides of a bloody warfare in Syria.

Interestingly, a post-war Syria will open business and investment opportunities for many regional players, and Russian hegemony of the Syrian conflict places it in a commanding negotiation position.

But will Iran, a US and Saudi foe for reasons ranging from the country becoming a nuclear power threat, to claims it backs terrorism in many parts of the region, be part of the discussion mix?

“Neither power is expected to discuss Iran, although there have been suggestions that they may discuss the ongoing crisis in Syria,” said Jameel Ahmad, Vice President and Chief Market Analyst from ForexTime (FXTM) to AMEinfo.

2 – Zooming in on common interests

“Saudi King Salman’s trip to Moscow is being keenly watched by investors around the world, not just because it is the first time in history that a Saudi monarch is visiting Russia, but because of the potential implications this could have on OPEC and the price of Oil,” said Ahmad.

On the trip’s program is an announced business forum which will see speeches by state-owned energy giants Saudi Aramco and Russia’s Gazprom.

Besides, extension of production cuts, till March 2018, is a key issue to come up for talks, as the sharp oil price decline, over the past three years, and predictions that it will continue hovering around $55 per barrel till 2017-end, has not yet reflected the high hopes that cuts in production would achieve.

Read: Saudi invests billions to make Vision 2030 a reality

3 – Collaborating

According to Ziad Daoud, the newly appointed Bloomberg Middle East Economist, who shared his insights with AMEinfoIraq itself has reduced production by 174,000 barrels a day following an agreement among OPEC members to cut production last November, while Saudi Arabia has lowered its production by 558,000 barrels a day since that date.

“The visit is likely to strengthen trade ties between Russia and Saudi Arabia, but most are wondering whether two of the world’s major oil producers will be discussing a collaboration to improve the price of oil,” Ahmad said.

Expanding on this, Ahmad continued: “In the past, Saudi Arabia has expressed a commitment to increased production cuts to bolster the market. Russia is another major producer of the commodity, and it is possible that Saudi Arabia is looking for an ally.”

Echoing those same feelings, Dmitry Peskov, a Kremlin spokesman, said country’s leadership was banking on this trip as a springboard for stronger relations and more productive talks on Middle East issues especially Syria.

4 – Dealing with currency peg crisis

“The lower price of oil means Saudi Arabia is permanently worse-off, but the government still spends as if it isn’t,” said Daoud.

“That’s led to once-plentiful foreign assets being eroded — barring a significant fiscal adjustment, Bloomber Intelligence (BI) Economics estimates the current situation can be sustained for just four years before threatening the currency peg. Saudi Arabia’s position is among the worst of the Gulf Cooperation Council countries,” he added.

5 – Showing good intentions

Nothing will escape smart leaders when it comes to paving the way for a smooth negotiation process.

Reuters reported Russian Economy Minister Maxim Oreshkin saying that investors were interested in a nuclear energy plant that Saudi Arabia wants to build and Saudis would be offered investment opportunities including in shipping company Sovcomflot.

6 – Eyeing a bigger piece of the pie

Kirill Dmitriev, head of the soverign wealth fund Russian Direct Investment Fund told media the fund would seek areas of synergy.

Now, $1bn (energy deal) is like a drop in water for a country having over $50bn in budget deficit and borrowing billions more, locally and internationally.

But it’s a symbolic gesture on both parts. Especially when you consider that Russia could play a part in the Saudi version of sovereign funds, the Public Investment Fund (PIF), where Aramco’s sale of a 5 per cent stake could raise $100bn in what would be the world’s largest IPO.

Read: Saudi Aramco needs $60-$70 oil for IPO 

7 – Dealing with strains from oil sector

Bloomberg Intelligence (BI) said today that the Kingdom’s non-oil growth has picked up in July and August, seeing 2% year-on-year growth.

“If this growth persists at this rate until the end of the year, the non-oil sector will show an average expansion of 1.3% in 2017,” BI said.

“However, this is not large enough to turn overall growth positive. The strain from the oil sector has deepened in July and August, according to OPEC statistics. The Bloomberg Monthly GDP indicator shows the Kingdom’s economy contracted by about 0.8% in July and August compared to last year.”

Read: UAE, Saudi enjoy robust non-oil private sector growth