Russian president’s global strategy keeps Moscow’s tentacles in enough places that the Kremlin is ensured a seat at every table that matters
You’ve got to give Vladimir Putin his due: The man knows how to play a weak hand well.
With relatively little investment, the Russian leader is expanding his toehold in the Western Hemisphere and potentially getting access to giant oil and uranium supplies by backing a dictator in Venezuela.
With relatively little investment, he has expanded his base of operations in the Middle East by propping up a dictator in Syria and by trying to send some sophisticated Russian military equipment into Turkey. (For the latter effort, he’d actually turn a profit.)
And with relatively little investment, and little notice from a distracted international community, he has kept up a low-level war against those fighting a Russian takeover in eastern Ukraine, holding on to a bargaining chip he might find useful someday.
He does all this while overseeing an economy roughly the size of South Korea’s, which produces little or nothing the world wants to buy, outside of oil and military gear.
It’s an audacious strategy—and it is working. Never was that more clear than last week, when Secretary of State Mike Pompeo and national security adviser John Boltoncited Russian support as the only reason Venezuelan dictator Nicolás Maduro remained in his country in the face of an organized uprising by his opponents and elements of his own military.
.. In short, Mr. Putin appears to recognize the moment he is in, and what to do about it. After almost two decades of a focus on combating terrorism and Islamic extremism, the world is evolving into a new era of big-power competition. The U.S. and China are the two big competitors now, of course, but Mr. Putin is making sure Russia is the third.
His problem is that Russia doesn’t have the economic might of the U.S. and China. So he brings to the table what he can, which is basically the ability to make trouble and thereby insert himself into the global mix.
Thus, Russia became an early world leader in the 21st-century tool of unconventional combat—cyber warfare. The Kremlin combined that skill with its traditional willingness to engage in the dark arts of covert action to interfere with the 2016 election in the U.S., as well as other elections in the West.
As the U.S. tries to maintain economic pressure on North Korea, Russia provides just enough economic relief to Pyongyang to ensure that Moscow has to be a player in how the standoff over North Korea’s nuclear program plays out.
Meanwhile, Mr. Putin is wedging himself into the space between East and West by offering to sell Russia’s S-400 air-defense system to Turkey, which happens to be a member of the American-led North Atlantic Treaty Organization. After members of Congress declared that Turkey couldn’t both buy the American-made F-35 jet fighter and have a Russian air-defense system geared toward shooting down that same jet, Russia stepped up and said it also would sell its own jet fighters to Turkey instead.
OPEC Has a New Best Friend: Russia
Putin has helped resolve conflicts within the cartel, giving the country considerable influence over oil markets
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.
The American president is stirring up trouble in a volatile oil market
If he cannot arm-twist OPEC, he may unleash America’s Special Petroleum Reserve
.. markets are being buffeted by three countervailing forces unleashed by President Donald Trump:
- his geopolitical agenda, particularly sanctions on Iran;
- his domestic political agenda, to lower American petrol prices before the mid-term elections; and
- his looming trade war with China.
If he does not get his way, he may have a dangerous weapon up his sleeve—America’s Strategic Petroleum Reserve (SPR). His meddling risks making OPEC, the oil cartel that is a focus of his wrath, look like a paragon of predictability.
.. adding fuel to the price rally is the Trump administration’s pressure on America’s allies to cut oil imports from Iran to zero by November 4th, or face punishment for violating American sanctions. This is more draconian than expected.
.. on July 2nd that more than 50 international firms, including energy ones, had agreed to pull out of Iran. Though America may allow some countries—possibly Turkey, France and others—to reduce imports rather than cut them completely, it will not grant any waivers.
.. a “zero-barrel” response could see between 800,000 and 1.05m b/d of Iranian crude come off the market, with the squeeze starting in September, 60 days of shipping time before the sanctions kick in.
.. In an interview on Fox TV aired on July 1st, he ordered OPEC to stop manipulating the market, threatening some of its members with the loss of American protection if they do not.
.. the highest level of production Saudi Aramco, the state-owned oil giant, has tried out for any length of time is 11m b/d (it is about 10.3m b/d at the moment). But keeping production at that level for several months would damage its reservoirs. Pumping 12m b/d would also take spare capacity in the global oil market to uncharted lows, exposing it dangerously to supply shocks.
.. Complicating things is the imminent risk of an America-China trade war. China has threatened tariffs on American oil imports if retaliation meets more retaliation.
.. China may pay no heed to American sanctions on Iran, which would further stoke tension between the two.
.. These factors, some bullish for oil prices, some bearish, may offset each other. But they have already had the unfortunate consequence of putting Mr Trump alongside the rulers of Saudi Arabia and Russia in the driving seat of global oil policy. Shale producers, who cannot respond to price signals anything like quickly enough to please Mr Trump, are sidelined
.. Analysts predict that if petrol prices continue to rise ahead of the mid-terms, Mr Trump will use a release of up to 30m barrels from the SPR to flood the market. That would be tantamount to launching an oil war against OPEC and Russia, in addition to the trade war. But it cannot be ruled out.