BACKGROUND: The apparent rapprochement between Russia and Saudi Arabia during Crown Prince Abdullah’s visit to Moscow is likely to have large implications for global energy markets, and especially for Caspian producers. There are significant forces which push Saudi Arabia and Russia into each other’s embrace. Oil, weapons and geopolitics drive their newly found common agenda. Moscow, on its part, is driven towards a partnership with Saudi Arabia for a combination of geopolitical and geo-economic reasons. It is looking to compensate itself for the loss of influence in the Gulf with the demise of Saddam Hussein, the old Soviet client. Russian companies connected to Moscow high-flying insiders used to do brisk business – up to $1 billion a year -- in Iraqi oil under the U.N.-sponsored oil-for-food programs. Most importantly, though, Moscow believes that Saudis and other rich Gulf states keep the keys to the 9-year-old war in Chechnya. One of the most radical and audacious Islamist commanders in Chechnya, known by Nom de guerre Khattab, was a Saudi. The Russian special forces killed him after a long hunt. Another top commander, Shamil Basaev, on the U.S. Department of State terrorism list, is known to have military and financial support from the Gulf, as well as a number of foreign Jihadi recruits. Moscow has consistently blamed Saudi Arabia for sponsoring extremism and terrorism in Chechnya and, thereby, keeping the conflict alive. During the horrific hostage taking in October of last year, the Russian security services alleged in the media that the Chechen suicide bombers who took 1,000 people hostage in a Moscow theater made phone calls to the Gulf. The Kremlin was livid. In the last summit with President Bush in St. Petersburg in June, President Putin stressed that 15 out of 19 hijackers were Saudi. President Bush nodded in agreement. This was an intentional jab to signal to Saudi Arabia that Russia is willing to join forces with the United States in prosecuting the war against terrorism if the Saudis don’t reign the radical Chechens in. Al Qaeda’s terrorist attacks in Riyadh, in which over 30 Saudis died, seemed to have change the tone in the desert kingdom. Now Saudi leaders claim that they view Chechen separatism as an internal Russian affair, and that their assistance was always exclusively humanitarian. While nobody in Moscow believes that, the Putin Administration, which is facing parliamentary elections in December and presidential elections in March 2004, is hoping for drying up of financing to the Chechen rebels, and thereby achieve a significant decrease in hostilities. Putin also wants Saudi Arabia to assist Russia to join Organization of Islamic Conference (OIC), as an observer. The OIC is an assembly of such Muslim stalwarts as Iran, Indonesia, and Saudi Arabia, and the Russian foreign policy establishment believes that an open channel of communication to these countries after 9/11 is in Russia’s national interest. Saudi Arabia, meanwhile, recognizes that Russia, as the largest producer of oil, the second largest exporter of oil, as well the largest producer of natural gas outside of the Organization of Petroleum Exporting Countries (OPEC), packs a lot of punch in the global energy markets. While the U.S. is interested in diversifying its energy supply to include Russia, Kazakhstan and Azerbaijan, Saudi Arabia wants its own direct energy dialogue with Moscow. And, as this author’s experience with Gulf oil industry experts demonstrates, Gulf States traditionally viewed the Caspian states, with their ample oil reserves and free of restraints of the Organization of Petroleum Exporter Countries (OPEC), as potential competitors to their cheap, but politically unstable, oil. Russian oil exports have grown at a rate of 8-10 percent a year since the financial crisis of 1998. Its increasing oil market share has in recent years begun to worry the Saudi monarchy, which saw signs of Moscow emerging as a rival on the horizon. Riyadh has traditionally considered itself the market-maker of energy and wants others to follow – and wants to keep it that way.

IMPLICATIONS: The five-year oil-and-gas cooperation agreement signed in Moscow by the two energy ministers, Igor Yusufov and Ali al Naimi, will allow the two fuel giants to coordinate the supply of oil to the global markets. This will doubtless help them keep the oil price at a level desirable to both. But in addition to obvious mutual interests in the energy sector, there are reasons beyond influence in energy markets, which drive the Russo-Saudi relations. No longer sure of its prior close relationship with Washington, the Saudi monarchy is reaching out to the former empire it helped America to defeat in Afghanistan only 15 years ago. In the aftermath of the Iraq war, Riyadh is looking to balance U.S. influence in the Persian Gulf. It also hopes to diversify its sources of weapons, and signals to Washington that it keeps all geopolitical options open. Russia, the world’s third largest weapons exporter after the U.S. and Great Britain, leads the word in the number of large weapons systems, like tanks and aircraft, sold. Its military sales topped $6 billion in 2002, according to the Stockholm-based International Peace Research Institute. In the 1990s, Russia sold $4 billion worth of state-of-the-art multi-layer air defense systems to the United Arab Emirates, and would like to open the large and lucrative Saudi weapons market to its rusting, but once-formidable arms industry.

CONCLUSIONS: Russia’s improved ties with Saudi Arabia and other Islamic states will give Moscow ever-increasing freedom of maneuver in the Caucasus and Central Asia. If the Islamic world mutes its criticism of Moscow’s policy in Chechnya, some in the Kremlin may interpret it as an implicit green light to neo-imperial behavior in the former imperial space. Dr. Sergey Karaganov, the Chairman of the Russian Council on Foreign and Defense Policy, and a consultant to the Russian government, was instrumental in bringing Prince Abdullah to Moscow. Karaganov says that the visit was “very productive”. This means Saudi-Russian cooperation both on energy and on Chechnya. Karaganov, however, is known as an advocate of a more robust Russian policies toward Georgia and Azerbaijan. His buoyancy on the Saudi-Russian ties may indicate a “new thinking” in the Kremlin: to make Russia indispensable to the U.S., Iran, as well as to Saudi Arabia, and in turn demanding their acquiescence to Russia’s assertive policies in the “near abroad.”

AUTHOR BIO: Ariel Cohen, Ph.D., is a Research Fellow at The Heritage Foundation.