When the Organization of the Petroleum Exporting Countries met in Vienna in December, it was in danger of imploding.
Oil prices had plunged. Member states Iran, Venezuela and Libya were refusing to cut production. Qatar had quit. And U.S. President Donald Trump was pressuring Saudi Arabia to keep prices low.
With negotiations teetering on the brink of failure, rescue came from an unlikely place—Russia, which isn’t even an OPEC member. President Vladimir Putin agreed to cut Russian oil production in league with OPEC, provided that Iran was allowed to keep pumping.
The degree of acrimony that pervaded that critical meeting, and the critical role Russia played in resolving the crisis, hasn’t previously been reported. What happened behind closed doors in December was a pivotal moment in Russia’s transformation from a nation that didn’t cooperate with OPEC at all to one that has become an indispensable partner.
Saudi energy minister Khalid al-Falih recently joked that he talks more with his Russian counterpart Alexander Novak than with some of his colleagues in the Saudi cabinet. “We met 12 times in 2018,” he said of Mr. Novak at a news conference in March.
At the next OPEC meeting, scheduled for May, Russia and Saudi officials will discuss whether to formalize what has been until now an temporary alliance.
For decades, the U.S. has embraced Saudi Arabia as one of its close geopolitical allies, selling it arms and encouraging its role as a stabilizing force in the Middle East. In exchange, Washington has come to expect a stable supply of oil to global markets to help damp price spikes and to prevent harm to the U.S. economy.
With its new ally in Russia, Saudi Arabia is no longer beholden only to Washington.
Under Mr. Trump, the U.S. has altered its longstanding, hands-off approach to the cartel. Mr. Trump has repeatedly tweeted for OPEC to boost output to drive oil prices down, and he has phoned the Saudi government directly asking the kingdom to open the taps.
“The United States-Saudi Arabia relationship plays a critical role in ensuring Middle East stability and maintaining maximum pressure against Iran,” said a senior Trump administration official. “The U.S.-Saudi relationship remains strong.”
The murder of dissident journalist Jamal Khashoggi at the Saudi consulate in Turkey last October created a fresh rift between the Saudi kingdom and the U.S.—and provided an opening for Russia to insert itself further into OPEC.
.. Oil prices had cratered in 2016 and didn’t look likely to rebound. The three men needed to orchestrate a deal to reduce crude output to lift global prices. Russia and OPEC agreed to cut production.
By the middle of last year, crude was soaring again, thanks to lower output from OPEC and Russia and renewed prospects for global economic growth. By the end of the year, however, amid a U.S.-China trade battle, the world’s economic outlook was dimming.
As the December OPEC meeting loomed, oil prices had plunged some 30% in six weeks. The Saudis needed unanimous agreement on proposed production cuts to shore up prices. Iran, already hobbled by U.S. sanctions that began in November, was reluctant to curb its output. Libya and Venezuela, with domestic troubles of their own, also were holdouts.
With the cartel about to meet in Vienna, Qatar, Saudi Arabia’s neighbor in the Persian Gulf, shocked global oil markets by announcing it was leaving OPEC. It was among a small group of member countries that felt overshadowed as the Saudi-Russia alliance grew stronger. OPEC has become “basically all about what [Prince Mohammed] and his buddy Putin want,” says a Qatari official.