Saudi-Russian axis rules oil markets as Trump fights Iran

DUBAI/LONDON – Iran may be Russia‘s ally in the Syrian conflict but when it comes to oil, Tehran‘s arch-enemy Saudi Arabia takes precedence – if last week‘s OPEC meeting in Vienna is anything to go by.

Iran had been pushing hard for oil producers to hold output steady as US sanctions are expected to hit its exports, meaning Tehran had little to gain from OPEC production increases that lower oil prices and cut its revenue.

But Saudi Arabia and Russia had other ideas. According to three sources close to OPEC and Russia, the world‘s two biggest oil exporters agreed in May to work hand in glove to engineer a sizeable increase in oil output – albeit for different reasons.

The events in Vienna were the latest example of how Russia and Saudi Arabia have effectively sidelined OPEC, driving policy for their own geopolitical ends and, in the case of Saudi Arabia, often at the behest of the United States.

With their end game in mind, Russia first proposed that the combined output of OPEC countries and non-OPEC allies, such as itself, should jump 1.5 million barrels a day (bpd) from July. Their tactic was for Saudi Arabia to then suggest a more modest rise of less than 1 million barrels in the hope it would be acceptable to Iran, the three sources told Reuters.

Saudi Arabia was keen to raise output to meet calls from US President Donald Trump and major consumers such as India and China to help cool oil prices and avoid shortages, according to Saudi officials including Energy Minister Khalid al-Falih.

Russia, meanwhile, was under pressure from its own energy companies to lift caps on output and fight a steep rise in domestic fuel prices that was hurting President Vladimir Putin‘s popularity, according to two Russian oil industry sources.

In the end, Saudi Arabia pushed through a rise of 1 million bpd at the Vienna meeting, in line with the plan it had agreed with Moscow more than a month earlier.

While Russia‘s motivation was mainly for domestic reasons, the outcome also played into Trump‘s hands to help lower domestic fuel prices ahead of US midterm elections.