Are Putin and Mohammed bin Salman Getting Ready for Another High-Five?

Saudi Arabia and other big oil producers, huddled in Vienna this week at their last big OPEC meeting of the year, are trying to walk a tightrope between fixing a glutted oil market that has hurt their own economies or keeping U.S. President Donald Trump happy. The end result may be a muddled middle course that neither stabilizes the price of oil nor mollifies a U.S. leader obsessed with keeping gasoline cheap.

The high-stakes meeting, coming just as the U.S. Congress is ratcheting up pressure on Riyadh over its role in the murder of a Washington Post columnist and in the war in Yemen, is also Saudi Arabia’s latest effort to come to grips with a double-barreled new reality.

While Saudi Arabia is still the largest oil producer inside OPEC, its influence over the global oil market has shrunk as the United States and Russia are pumping oil at record levels. And rising tensions between Saudi Arabia and many in Washington mean that the geopolitical alignment that has held fast since World War II risks coming undone. The answer to both problems, from Riyadh’s point of view, is closer ties with Moscow.

As a result, deeper cooperation between Riyadh and Moscow to manage the world’s oil supply—even if that means bucking the directives of the White House—could be one lasting outcome of this week’s OPEC gathering. And Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman may have reason to repeat their notorious high-five at last week’s G-20 meeting.

This OPEC meeting, which kicked off Thursday and which will wrap up after talks with non-OPEC member Russia on Friday, matters more than most because of the perilous state of the global oil market. As the Trump administration prepared this summer to choke Iran with renewed sanctions, including a ban on oil exports, Saudi Arabia and other big oil producers answered the White House’s call to open the spigots to avoid nasty price spikes.

But they overdid it, redoubling oil output in Saudi Arabia and Russia even as U.S. production reached record highs—and all while Iran’s crude exports shrank less than expected. That left a glut of oil sloshing around the world, sending the price of oil into freefall. Between late October and late November, Brent crude fell by almost 30 percent, from about $80 a barrel to less than $60, where it remains.

Relatively cheap oil is good news for drivers around the world, who pay a little less for gasoline. But it’s terrible news for petrostates such as Saudi Arabia, Iraq, and Russia that rely heavily on revenues from crude exports. That makes the recent price collapse as much a political threat as an economic headache.

OPEC ministers came to Vienna recognizing the economic realities. With the world pumping about 1.2 million more barrels every day than it consumes, “they have to tighten the market. If they don’t get rid of that oversupply, the market will drown in oil,” said Antoine Halff of the Center on Global Energy Policy at Columbia University.

On Thursday, delegates at the meeting said that OPEC countries and some other big producers are considering cutting their combined production by about 1 million barrels a day, though details are scant and much depends on how much of an output cut Russia agrees to on Friday. Saudi Oil Minister Khalid al-Falih said he hoped the group could reach a deal by Friday.

But recognizing economic reality is one thing; political reality, in the form of Trump tweets, keeps gatecrashing. On Wednesday, just before OPEC officials started talking about how to stabilize the oil market, Trump lobbed a rhetorical grenade in their direction: “Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!” he tweeted.

That veiled warning, an apparent effort to again dictate OPEC’s production decisions from the White House, irked Iran, which said the oil-exporting cartel shouldn’t take orders from Washington. But it was also a warning shot to Saudi Arabia not to do anything to anger one of the few people in Washington who still seems supportive of Riyadh and its embattled leadership.

Even while Trump and some senior cabinet officials continue to downplay their concern over Saudi leaders’ responsibility for the kidnapping and dismemberment of journalist Jamal Khashoggi, Congress is amping up its condemnations of the kingdom. On Wednesday, a bipartisan group of senators introduced a resolution blaming Crown Prince Mohammed bin Salman for the journalist’s killing. Later this week, the Senate will consider legislation to end U.S. support for the Saudi-led war in Yemen, which has created a massive humanitarian catastrophe.

So Saudi Arabia is on the horns of a dilemma. It needs to take the lead in throttling back oil production to shore up crude prices and salvage its own economy, and it has to clearly signal its intent to do so in order to convince the oil market. But it also has to be wary of angering the mercurial U.S. president by seemingly disregarding his wishes. The result is that how OPEC communicates its decision this week could be as important as how much it ultimately decides to cut.

“They need the reality of the cut, there’s no question about that, but the question is how much do they want to signal a reduction, how much do they want to advertise it?” said Halff, who was formerly the chief oil analyst at the International Energy Agency.

OPEC’s efforts to have it both ways on Thursday by talking up a deal-in-progress didn’t pay immediate dividends. Vague talk of some sort of moderate cut in oil production, while still seeking to nail down just which countries will cut by how much, failed to assuage oil traders, who sent crude prices even lower Thursday morning.

But Saudi Arabia has bigger game in mind at Vienna than just stabilizing oil prices. Recognizing that it can’t shape the global oil market by itself anymore but rather needs the cooperation of Russia, Saudi Arabia is hoping to formalize an ad hoc agreement between OPEC and Moscow that began in 2016, a time when dirt-cheap oil also posed a threat to oil-dependent regimes. That informal agreement expires at the end of the year, but the Saudis would like to make Russia’s participation with the cartel more permanent.

“The Saudis have been obsessed with bringing Russia under the tent,” Halff said. “If they can achieve that, whatever they do about production volumes becomes secondary.”

Russia has benefited from its cooperation with OPEC, which allowed it to regain influence over the global oil market and share in rising prices from managed production. Russian officials have repeatedly signaled their intention to formalize the current agreement, essentially enshrining Moscow as part of the consensus-based decision-making process in the global oil cartel, said Matt Reed, the vice president at Foreign Reports, an energy consultancy.

“Russia gains a lot from this setup. They enjoy their new status as market movers, and they’ve cut less on a percentage basis than the other countries, while enjoying the windfall just the same,” he said.

Saudi Arabia’s outreach to Russia—symbolized most recently by the beaming handshake between Mohammed bin Salman and Russian President Vladimir Putin—is about more than just managing the price of crude.

Saudi Arabia’s outreach to Russia—symbolized most recently by the beaming handshake between Mohammed bin Salman and Russian President Vladimir Putin—is about more than just managing the price of crude. It’s a recognition that the United States needs Saudi Arabia less than it did in decades past, when America was importing more oil and the globe was more reliant on steady Saudi supplies.

Younger Saudi leaders, in particular, see relations with the West in a different light than the older, Cold War generation of princes did, said Christopher Davidson, a visiting fellow at Leiden University in The Hague and an expert on Gulf politics.

“We shouldn’t underestimate the ability of regimes like Russia and Saudi Arabia to come to an understanding. This could well be a window of opportunity for them to come together,” he said, despite all kinds of bilateral tension in areas like the war in Syria or Saudi support for extreme flavors of Islam.

“It’s a reflection of the younger cohort’s mentality; they are a bit more realistic and realize America doesn’t need Saudi Arabia as much any more,” Davidson said. “That’s why the high-five at the G-20 was so symbolic, it was a message that, ‘Hey, we do have some leverage here.’”