“Putin, sadly, has got all of our political class, every single one of us, including the media, exactly where he wants us.” Fiona Hill speaks to Lesley Stahl in her first interview since the impeachment inquiry. Watch tomorrow on 60 Minutes. https://t.co/VioR1BrQ7Z pic.twitter.com/LK7Q2mZjEZ
— 60 Minutes (@60Minutes) March 7, 2020
There’s another reason things turned for the US economy last week… A geopolitical game over oil prices outside US control.
— Shawn Donnan (@sdonnan) March 7, 2020
At 10:16 a.m. on a wet and dreary Friday morning, Russia’s energy minister walked into OPEC’s headquarters in central Vienna knowing his boss was ready to turn the global oil market upside down.
Alexander Novak told his Saudi Arabian counterpart Prince Abdulaziz bin Salman that Russia was unwilling to cut oil production further. The Kremlin had decided that propping up prices as the coronavirus ravaged energy demand would be a gift to the U.S. shale industry. The frackers had added millions of barrels of oil to the global market while Russian companies kept wells idle. Now it was time to squeeze the Americans.
For over three years, President Vladimir Putin had kept Russia inside the OPEC+ coalition, allying with Saudi Arabia and the other members of the Organization of Petroleum Exporting Countries to curb oil production and support prices. On top of helping Russia’s treasury – energy exports are the largest source of state revenue – the alliance brought foreign policy gains, creating a bond with Saudi Arabia’s new leader, Crown Prince Mohammed bin Salman.
But the OPEC+ deal also aided America’s shale industry and Russia was increasingly angry with the Trump administration’s willingness to employ energy as a political and economic tool. It was especially irked by the U.S.’s use of sanctions to prevent the completion of a pipeline linking Siberia’s gas fields with Germany, known as Nord Stream 2. The White House has also targeted the Venezuelan business of Russia’s state-oil producer Rosneft.
“The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2,” said Alexander Dynkin, president of the Institute of World Economy and International Relations in Moscow, a state-run think tank. “Of course, to upset Saudi Arabia could be a risky thing, but this is Russia’s strategy at the moment – flexible geometry of interests.”
The OPEC+ deal had never been popular with many in the Russian oil industry, who resented having to hold back investments in new and potentially profitable projects. In particular, Igor Sechin, the powerful boss of Rosneft and a long-time Putin ally, lobbied against the curbs, according to people familiar with the matter, who asked not to be identified discussing private conversations.
The Kremlin was also disappointed the alliance with Riyadh hadn’t yielded major Saudi investments in Russia.
For several months, Novak and his team had been telling Saudi officials they liked being in the OPEC+ alliance but were reluctant to deepen production cuts, according to people familiar with the relationship. At the last OPEC meeting in December, Russia negotiated a position that allowed it to keep production fairly steady while Saudi Arabia shouldered big reductions.
When the coronavirus started devastating Chinese economic activity in early February – cutting oil demand in Saudi Arabia’s biggest customer by 20% — Prince Abdulaziz tried to convince Novak that they should call an early OPEC+ meeting in response to cutback supply. Novak said no. The Saudi king and Putin spoke by phone – it didn’t help.
As the virus spread and analysts forecast the worst year for oil demand since the global financial crisis, the Saudi camp was hopeful Moscow could be won round at the next scheduled OPEC meeting in early March. The Russians didn’t rule out deepening cuts, but kept making the point that shale producers should be made to share the pain. Putin, who has been the final arbiter of Russia’s OPEC+ policy since the alliance started in 2016, met oil Russian producers and key ministers last Sunday…