Foreign Policy Research Institute A Nation Must Think Before it Acts Beyond COVID-19, Part 3: Russia-Saudi Oil War and Developments in the Black Sea
Beyond COVID-19, Part 3: Russia-Saudi Oil War and Developments in the Black Sea

Beyond COVID-19, Part 3: Russia-Saudi Oil War and Developments in the Black Sea

Week two of self quarantine in the United States is almost at a close. This is our third “installment” of Beyond COVID-19. The Foreign Policy Research Institute created this Round Table series in an effort to keep our readers informed of key stories that would normally receive plenty of news coverage but aren’t due to the constant coverage of the pandemic. We hope that these discussions will inspire you to follow-up on these important developments from around the world.

This Round Table features a conversation between Thomas J. Shattuck, Managing Editor at FPRI, and Nikolas K. Gvosdev, Black Sea Fellow in the Eurasia Program at FPRI and Professor of National Security Affairs, holding the Captain Jerome E. Levy Chair in Economic Geography and National Security at the U.S. Naval War College in Newport, Rhode Island. He recently authored a Black Sea Strategy Paper for FPRI on “Russia’s Southern Strategy.” The intention is to convene these conversations twice a week (Tuesdays and Thursdays) for the duration of the crisis, so that readers will not lose out on pertinent information and stories from the areas that FPRI covers. 

General reminder to our readers to keep up to date with guidelines coming from the U.S. Centers for Disease Control and Prevention; continue to stay home as much as possible; and when you must leave your home and engage with people, be mindful of social distancing practices; and wash your hands frequently with soap for at least 20 seconds.

Thomas Shattuck: Nick, first off, thank you for agreeing to take part in our ongoing “Beyond COVID-19” series. You’re our first guest to join, and we have plenty to discuss, so let’s get started. Russia and Saudi Arabia seem to be playing a dangerous game in the oil markets during the pandemic. Can you explain what they’re doing and the rationale behind their actions? What do you expect to happen in the next couple of weeks?

Nikolas Gvosdev: Tensions were building between Russia and Saudi Arabia over the fate of the OPEC+ process for the last year. Russian energy companies had been consistently lobbying President Vladimir Putin to exit the deal since summer 2019, while the Saudi government felt that Moscow was trying to take advantage of Riyadh’s efforts to hold the line on production by slow-rolling Russian compliance. Putin reportedly sold continuing the deal with the Saudis on the grounds that Crown Prince Mohammad Bin Salman would be able to direct large investment flows into the Russian economy, including key Arctic projects that are near-and-dear to Putin’s heart, and so compensate for the ongoing impact of Western sanctions. The Saudis were hoping Russia would be able to do more to rein in Iran. 

What happened in March in Vienna was a textbook case of miscalculation and misperception. The Russians seem to have underestimated the degree of damage that the COVID-19 pandemic would wreak on the global economy. The Saudis wanted to cut production further to deal with the fallout from the pandemic, but the Russian side wanted to hold the line. Russian Energy Minister Aleksandr Novak apparently believed that the Saudis were bluffing about pulling out of the deal altogether, but they weren’t—and the Saudi side was fed up with trying to hold together a fractious group of energy producers in this arrangement.

Having unleashed the dragon, it does seem that both the Russian and Saudi energy establishments are now treating the situation like a demolition derby—both are willing to absorb short-term damage if it starts to drive other high-cost producers, starting with the U.S. shale firms, out of business. Then, when the dust settles, the Saudis seem interested in recreating some sort of understanding among the survivors about how to regulate energy markets for the future. Rosneft CEO Igor Sechin even believes that oil prices will return to the $50/barrel range by the end of 2020!

But for the short term, it will produce a great deal of market instability—and it is now very much every energy producer looking out for themselves. Of course, this is good news for consumers—but, whenever energy prices collapse, it also creates problems for those promoting “green” energy as those projects look far less attractive when oil is at $25/barrel.

Shattuck: As you explained in your recent piece on NATO for FPRI, the alliance is at an inflection for a number of reasons. We’re seeing almost every Western country sever international travel and advising their citizens to return home before it’s too late. Some governments are helping each other out, but the situation reads like it’s every-man-for-himself. What is the state of globalization as we currently understand it? 

Gvosdev: The  Munich Security Conference occurred only a short month ago—but it now seems to be part of a distant world beyond reach. But that conference’s main theme was the concept of “Westlessness”: what happens if the “West” (the Euro-Atlantic world) ceases to remain a coherent political, security, and economic community? What happens if fractures emerge between the United States and Europe, and among Westerners in terms of how they relate to China?

Despite all the talk that somehow the pandemic will end globalization, the reality is that countries continue to maintain their linkages across borders. Even the companies working on developing a vaccine for the coronavirus are global in nature—relying on partners and contractors around the world. The question is not whether globalization will stop, but how it will evolve. 

One possibility is that countries and companies will rethink their supply chains and shift towards consolidating their operations around a more compact group of countries. One sees elements of this in the so-called “democratic community” narrative for foreign policy: that the United States, for instance, should decouple from China in favor of closer connectivity with its European and East Asian allies.

The other is that the pandemic tests the limits of solidarity, especially within the Euro-Atlantic community, so that individual countries will pivot away from allies “on paper” who do not seem to offer concrete assistance towards countries like Russia or China, even if their partners have problems with Moscow or Beijing. It may be harder to maintain a united Euro-American position vis-à-vis China or Russia if specific countries feel that their bilateral relations with Moscow and Beijing are more important than their multilateral connections with fellow EU and NATO members.

Shattuck: Since you are a Black Sea Fellow at FPRI, I would be remiss if I didn’t throw in a question about what’s going in this important part of the world. Since most of the world is occupied with their own COVID-19 responses, we aren’t hearing much about the Black Sea region. What should readers be aware of right now? What is Russia doing in the Black Sea region and how have Russia-Turkey relations been over the past few weeks?

Gvosdev: One month ago, we were focused on whether Russia and Turkey would end up in an open, direct military clash in northern Syria. Now, Idlib province, where everyone was worried about the possibility of NATO being drawn into a shooting war with Russia in defense of a Turkish ally, has disappeared from the headlines. 

The Russia-Turkey truce is holding, but the joint Turkish-Russian military patrols meant to keep a vital highway open and secure have run into problems. Russian Defense Minister Sergei Shoigu was in Damascus earlier this week to discuss ceasefire efforts to ensure that Syrian government and Turkish military forces do not re-engage each other. So, Moscow continues its balancing efforts to maintain its influence in the region. 

Moreover, Turkey is now benefiting from the start of the Turkish Stream pipeline, which has enabled Russia’s Gazprom to reduce its transit across Ukraine in order to be able to directly supply not only Turkey, but other customers in Southeastern Europe. This, again, speaks to the weakening of solidarity within the alliance; while other NATO members want to bolster Ukraine’s position, Turkey is in line to benefit greatly from becoming an alternative transit country for Russian energy exports.

Keep in mind, too, that the Russian decision to send humanitarian aid to Italy is part of its larger southern strategy. The message being sent to Rome is that Moscow is not only helping Italy during its time of pandemic crisis, but that Russian efforts in Syria and Libya can either help to reduce or increase the migration crisis affecting Europe. Moscow wants to validate the stance taken by the Italian government that it is time for Europe to normalize its relations with Russia. 

Shattuck: One final question: what is the most important non-COVID-19 story that you think should be getting more attention? We’ve covered the oil market, globalization, and the Black Sea region, but what “big issue” is on your radar right now?

Gvosdev: This connects to the last question about the Black Sea region, and it has to do with Ukraine. We’ve seen in the course of the last year the popularity of President Volodymyr Zelensky come crashing down, and earlier this month, he fired his Cabinet. Growth has slowed and foreign investors have not flocked to take advantage of new opportunities because they are unsure about both the political climate and the long-term stability of the country. Just because there is a COVID-19 pandemic does not mean that the conflict with Russia has disappeared—but as European countries turn inward, there is less enthusiasm for opening pocketbooks to make new commitments to Ukraine. In turn, Zelensky has made important concessions, including a willingness to treat with the separatists in Eastern Ukraine. The distraction of the pandemic may give Russia the ability to make progress on its preferred vision for a settlement in Ukraine—and in so doing, pave the way for an exit ramp from European sanctions.

Shattuck: Nick, thank you for taking the time to answer my questions and, as always, for your wonderful insights. Stay safe and healthy!

The views expressed in this article are those of the author alone and do not necessarily reflect the position of the Foreign Policy Research Institute, a non-partisan organization that seeks to publish well-argued, policy-oriented articles on American foreign policy and national security priorities.