Russia and OPEC: convenience but no marriage
By Andrea PALASCIANO
Two years after they teamed up to take back control of oil markets, the alliance between Russia and OPEC continues to be effective.
But experts say talk of a more formal and permanent partnership are premature, with Moscow keen to maintain its independence.
Hit by a plunge in oil prices between 2014 and 2016, Russia and OPEC heavyweight Saudi Arabia at first blamed each other for the collapse that was wreaking havoc on their economies.
But in late 2016 Russia and OPEC came together, finally agreeing to limit their oil production that accounts for more than half of global supplies.
The alliance — dubbed OPEC+ — has endured, with regular meetings and agreements to maintain production limits.
On Monday, representatives will meet in a Baku hotel to review an accord that runs until June and to possibly propose extending it at an official meeting in Vienna in April.
They are also set to discuss formalising an alliance that has breathed fresh life into OPEC and brought Russia new influence as an arbiter on the oil market.
The pact between OPEC and a dozen non-member countries including Russia was not an easy decision after years of fierce competition for market share that lead to overproduction.
“Before OPEC+ came into action, OPEC had practically ceased functioning,” said Rustam Tankayev, an expert at the Union of Oil and Gas Producers of Russia.
“The only chance for OPEC to regain the power to regulate the global oil market was to significantly expand the alliance.”
Francis Perrin, director of research at the French Institute for International and Strategic Affairs, also stressed that relations between Russia and OPEC “haven’t always been easy”.
“OPEC used to consider Russia as an illicit hanger-on that was turning a profit from the efforts of others,” he said.
“The fact that they have made this cooperation long-lasting is already a real result.”
– Playing hard to get –
The challenge for OPEC+ is to retain enough clout to keep prices at a level that ensures comfortable budgetary returns for producer countries without sparking a drilling boom in the United States.
“OPEC’s role will diminish in the next 20 to 30 years, the Saudis are aware of this,” said Igor Delanoe, deputy director of the Franco-Russian Observatory group.
“Facing a newly heavyweight America, Moscow and Riyadh have every interest in coming to an agreement on keeping oil prices to at least $60 to $70 per barrel, which renders some US projects worthless.”
While OPEC, and mainly Saudi Arabia, have made it clear they would like to formalise longer-term cooperation with Russia, Moscow seems to be playing hard to get.
Russia’s leaders nevertheless know how much it owes to the alliance after falling oil prices and Western sanctions over its annexation of Crimea from Ukraine led to a deep economic crisis in 2015 and 2016.
Russia’s privileged position with OPEC allows it to assert itself against the United States in the energy sector, while playing all the intermediaries against each other.
“There’s only one country in the alliance that’s friends with all the others — and that’s Russia,” said Tankayev, highlighting Saudi Arabia’s tensions with Iran and Venezuela.
In December, OPEC nearly ended a meeting without reaching agreement due to tensions between Riyadh and Tehran. Market watchers credited Russian Energy Minister Alexander Novak with calming everyone down at the last minute.
Still, observers said Russia appears to have no intention of becoming a full member of OPEC.
“Russia has always kept a distance from OPEC, drawing a distinction between cooperation and integration,” said Perrin.
“Having to put the level of national production under OPEC’s control is very restrictive.”