Russia-Saudi FDI and U.S. Sanctions – Part I

Russia-Turkey-Saudi-Kurdistan-Germany axis, Russia-France-Iran-Iraq-Lebanon

I defined two current axes: Russia-Germany-Turkey-Kurdistan-Saudi (RGTKS) and Russia-France-Iraq-Iran-Lebanon (RFIIL). But a third emerging powerful axis is possible: The US-SDF-Kurdistan-Qatar. The most recent events showed that US was incapable of breaking ranks of European countries.

Will Kurdistan’s independence completely shift policies in the Middle East? Only if Kurdistan is not on Russian axis and is re-positioned by US away from Russia. I will tackle this subject in the light of the Saudi shifting policies.

A Different Relationship 

This time Russia-Saudi Arabia’s relationship is different from past approaches on all scales:

  1. Diplomatic relationships between both countries were frozen from 1938 till 2003. In 2015 ties began to develop, but this is the first official visit of Saudi King Salman to Russia. Putin once visited Saudi in 2007. PS: FDI 2015 had different circumstances than FDI 2017.
  2. Aramco-Rosneft are primary key-players at FDI. In June 2017, Financial Times reported that: “Gazprom is in advanced talks with Aramco about possible sharing of drilling technology.” This was a sign that cooperation between Russia and Saudi Arabia on energy policy could soon be replicated at the company level.
  3. Other projects to be concluded include: the petrochemical, energy, infrastructure (air, land, sea industry) and other industrial sectors.
  4. Trade between both countries has been prospering. The volume increased from $235 millions in 2005 to $926 millions in 2015. Saudi Arabia’s exports amounted $155.3 millions, while imports from Russia were at $770.7 millions.
  5. During FDI 2017, Saudi culture, folklore, cinema will be introduced to the Russian public and discussed. FDI guests will be even able to take a virtual tour into a reproduced Saudi city via VR-technology. This indicates toward a different kind of relationship: A relationship based on respecting “Wahhabi” Saudi Arabia and promoting it as a “civilized” country adequate for a partnership.
  6. In an observation of the Kremlin propaganda state’s media tendencies, a U-Turn toward Saudi is noticed. Saudi was previously permanently under indirect media attack. Not to mention, that a totalitarian state like Russia has a one-sided media. This means, it has a coherent and coordinated diffusion of information backing the government, its goals and its elite tycoons.
  7. Putin’s political genius relies on proxies such as Iran and Hezbollah to attack Saudi Arabia, while he plays the savior and negotiator.
Is a Cartel possible?

So far, there is no indication toward building a cartel between Saudi Arabia and Russia, because of the RFIIL-axis and its conflict of interests. Additionally, there are other factors which could prohibit a cartel:

  1. Nord Stream 2 gas pipeline with Germany was approved in April and will cost about $12 billion. The financing is a shared investment of 50% through European countries and 50% through Gazprom.
  2. The recent Head of UNIFIL Beary dispute with US Haley and Israel was in favor of Moscow. This indicates toward an internal UN dynamic dealing differently with the Middle East than previous decades. It empowers Kremlin’s position.
  3. Macron’s double-games leverage France, benefit Russia and the markets of EU countries. Macron’s green light from Jordan to accept Assad led to creating a safe-zone in South Syria along Jordan-Israel-Syria border. Iran signed deals with Total France as well as other companies, thus the alternating French statements below, highlight Macron’s potential role and the extension in building the RFIIL axis:
    1. attacking the Kremlin and simultaneously being a medium for US-Russia negotiations,
    2. rejecting and accepting Assad,
    3. meeting Lebanon’s Aoun and reinforcing Assad,
    4. French companies are investing in Lebanon’s oil and gas.
  4. Qatar is in a weak position between both axes.
  5. The Turkish Stream gas pipeline, which will cost about $13 billions urged Turkey to protest possible EU sanctions against Russia and condemned US sanctions.
  6. These US sanctions and its presence in Syria and Iraq complicate Russia’s and Europe’s strategic economic decisions. Yet the following must be observed:
What the FDI 2017 means

At FDI a common Russian-Saudi fund worth 10 Billion dollars will be created, financed from Russia’s Direct Fund and Saudi’s public investment fund. This will consolidate Russia’s leading status in the energy market and the incapability of US to marginalize and isolate it, despite sanctions and boots in Syria and Iraq.

Moreover, talks between both countries are in their last stage at FDI. Through this fund, Saudi is giving Russian companies access to invest inside Saudi Arabia and other countries in the field of petrochemical, energy, transportation, agriculture and other industries. The agreements are made between the governing rulers of Russia and Saudi Arabia, thus Russian companies within the ruling mafia will get the contracts. It is obvious that Saudi is helping Russia circumvent US sanctions and enabling its companies (Putin gov-linked companies) to invest in several countries under the cover of an FDI fund.

A look at the participants to FDI 2017 reveals in which direction the Russian-Saudi goals are heading. Some of the listed companies include: Public Investment Fund (PIF), Russian energy company Gazprom, Saudi Arabian Oil Company Saudi Aramco, SABIC, SIBUR, AEROFLOT, RUSAL, Grain Silos and Flour Mills, OZK, Saudi Agricultural and Livestock Investment Company, Rusagro Group.

The Russia-Saudi Deal and its Impact

Saudi’s Benefits from Russia’s New Ties:
What does Saudi Arabia get in return for its empowering Russia?
  1. Leveraging Saudi in Syria and marginalizing Qatar is possible.
  2. Saudi clearly wants from Russia to rehabilitate its reputation and market its country as well as crown prince Bin Salman and Vision 2030 in international forums with the help of Russian state media and individual networks.
  3. Reducing Qatar’s, Iran’s and Turkey’s regional influence and holding them in check.
  4. Acknowledging Kurdistan as an independent state and supporting Sunni of Iraq to get an independent state in Anbar.
  5. Supporting Saudi Arabia’s Red Sea project and more.
How will other governments react?

What other governments will do to thwart Russia’s expansion depends on how they evaluate their losses and gains in supporting or boycotting Russia, and evaluating Russia’s power and its effect on short and long term.

Is a U.S.- Qatar — SDF regions — Kurdistan axis possible? One may think that without Turkey it would be impossible, at the contrary it is possible and important to exclude Turkey in order to weaken the positions of Turkey, Russia and Europe verse US-axis. Russia is aware that LNG can be sold to Europe through Asian markets. LNG can be also sold by Kurdistan without including Turkey. The Syrian Democratic Forces led by the US possess a rich oil and gas area. The oil fields in the resource-rich province of Hasaka in North Syria account for more than half of Syria’s 370,000 barrels a day. Fifty percent of the oil block in Hasaka was being operated by Gulfsands, a London-listed company, covering an area of 5,414 square kilometers. Oil payments were made to Rami Makhlouf, the first cousin of Syrian President Bashar al-Assad. Now Makhlouf is indebted to Gulfsands Petroleum which suspended his shares in the company. Gulfsands has been in Syria for more than a decade and owns half an oilfield with China’s Sinochem. Following the imposition of EU sanctions on Sept. 2, 2011, production by Gulfsands fell from 14,500 barrels per day (bpd) to 6,000 in October 2011. Production was completely shut down in March 2012 as a result of sanctions targeting Syria’s economy. A production manager working for the state Syrian Petroleum Company told Executive Magazine that the Syrian regime still operates the field without Gulfsands. Reports indicate that although much of Hasaka province is controlled by the PYD’s armed group, the People’s Defence Units (YPG), the regime still operates the oil fields and controls the security. According to a recent report on the Kurdish news website Welati, the oil city of Remelan has been surrounded by Assad forces and handed over to Arab tribes. In August, Assad, Hezbollah, Russia and Iran struck a deal with ISIS over Deir Ezzor and were able to take over several gas and oil fields within hours. SDF sources told me they will continue to Mayadeen and Bou Kamal which also contain further oil and gas fields (See my report on ISIS-Hezbollah deal for details).

How will U.S. handle the New Situation?

“US new sanctions are introduced on entities doing business with Russian military or intelligence agencies, companies involved in Russian off-shore oil projects, and those participating in Russian oil or gas pipeline construction within Russia. The bill targets a wide range of Russian industries.

Whether the U.S. decides to support an independent Kurdistan is also related to other factors, but one thing is definite, at this concrete stage, Iraq is and will remain hijacked by Iran in the presence of Iran’s Shiite proxies in Iraq, Syria and Lebanon. Most Middle Eastern remain hostile to U.S. and in general despise Western values despite the rulers’ progressive thoughts with the exception of SDF areas and Kurdistan, but for how long? U.S. policies are continuing to make it lose for Russia. It’s time for the U.S. to evaluate why Putin with less resources gained more trust and less hostility in the Middle East.

Joumana Gebara — Senior SME and Analyst at MEA Study and Strategy Center.

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