MOSCOW — It was always a marriage of convenience, whatever the pledges of devotion, but when Russia and Saudi Arabia parted ways late last week after a dispute over oil production, it was like a lot of breakups: instantly acrimonious.
Gone, it seems, are the days when two of the world’s strongest-willed leaders, Vladimir V. Putin and Crown Prince Mohammed bin Salman, engaged in an unlikely courtship to prop up oil prices and extend their influence. Only six months ago, the Saudi energy minister called it an “until death do us part” union.
Saudi Aramco, the national oil company, said that on April 1 it would start providing customers with 12.3 million barrels a day. That is a 26 percent increase on its output before the deal with Russia collapsed.
And taking dead aim at Moscow, the kingdom offered steep discounts for April deliveries to customers in Europe, a direct strike against one of Russia’s primary markets.
Amid the tumult, it was unclear which country might emerge the winner of the dispute in the long run, though both have so far been damaged by the price fall.
But the breakup was a clear victory for one close ally of Mr. Putin’s, Igor I. Sechin, the head of Russia’s biggest oil company, Rosneft. It was also a coup for nationalist-minded Russian economists intent on punishing the United States, no matter what the cost to Russia.
Mr. Sechin, who has worked alongside Mr. Putin since the 1990s, when they served together as midlevel officials in St. Petersburg, has been lobbying for years against production cuts proposed by the Saudis.
The cuts are aimed at putting a floor under oil prices, but Mr. Sechin argued that efforts to keep oil prices high by limiting output only spurred shale oil production in the United States. This, he said on Sunday, was “pointless.”
He has been supported in this long and, until last week, fruitless campaign by economic nationalists in Russia. They were aghast at an arrangement with the Saudis that they saw as mainly helping the United States, where natural gas and oil extracted from shale has undercut Gazprom, Russia’s state-control energy giant, and also Rosneft, the two pillars of Russia’s state sector.
A surge in shale production turned the United State from a large oil importer to the world’s largest oil producer and an increasingly important exporter, threatening Russian markets. But shale oil and gas are expensive to produce, and Russia is now calculating that many companies cannot survive as prices fall below their break-even point.
“We are not ready to give our market to those whose production costs are higher than ours,” said Mikhail Delyagin, director of the Institute for the Problems of Globalization, and a former government economist. “Why should we give up our market?”
Anger at Russia’s deal with the Saudi-led Organization of the Petroleum Exporting Countries flared, Mr. Delyagin said, after the United States in January announced plans to export crude to China — the planned market for vast and costly oil developments in Siberia. Russia also worried that other high-cost producers, among them companies pumping off the coast of Brazil, would cut into European and Asian markets, he said.
But not everyone is impressed with the arguments of Mr. Sechin and the nationalists, at least from a strategic and economic standpoint.
Sergei Guriev, a professor of economics at Sciences Po in Paris and the former chief economist of the European Bank for Reconstruction and Development, said torpedoing the production agreement with OPEC is “not at all in Russia’s interest” because it has only opened a price war with the Saudis and is unlikely to kill off competition from American shale oil companies.
“They won’t die, but only go into hibernation,” he said of the American companies, which will lay off workers and mothball drilling rigs until prices recover to profitable levels.
All the same, Mr. Guriev added, Mr. Sechin and others in Russia opposed to the alliance with the Saudis “are happy to shoot themselves in the foot, so long as they can shoot the Americans, too.”
The share price of Mr. Sechin’s company, Rosneft, has fallen 16 percent since Friday. That was the day major oil producers failed to reach an agreement in Vienna to reduce production, as concerns about coronavirus’s impact on economic demand spread across the globe. Following the Vienna meeting, the price of crude oil promptly fell by nearly 30 percent, though it recovered slightly on Tuesday.
That Russia would risk a punishing and possibly prolonged struggle with Saudi Arabia for market share underscores how much geopolitical tensions — amplified by Russia’s annexation of Crimea in 2014 and the sanctions imposed by the West as punishment — have scrambled Russia’s economic calculations and also the balance of influence within the Kremlin.
Russia’s decision to break with OPEC and send the global price of its principal export tumbling caused widespread dismay, particularly as it has often cheated on output targets set by OPEC and a wider group of producers known as “OPEC plus.”
Mr. Sechin’s has long been opposed to any production-cut deals with Saudi Arabia, viewing them as a move that cedes market share to the United States, said an oil executive in Moscow who works closely with Mr. Putin’s longtime ally and who asked not to be named so that he could speak frankly.
But until last week, when Russia’s oil minister, Aleksandr V. Novak, was sent to Vienna with orders to tell OPEC that Russia could not accept proposed new cuts in production, Mr. Sechin had repeatedly lost the argument in the Kremlin, where all key decisions on energy policy are ultimately made.
His previous failure to win Mr. Putin over to his side was a rare setback for the head of Rosneft, a state-controlled oil giant that, along with Gazprom, stands at the center of a drive by the Kremlin to create “national champions” to promote Russia’s geopolitical and economic interests.
Widely feared in Russia for his pugnaciousness, Mr. Sechin has a reputation for getting his way. A former economic minister who clashed with him over policy, Aleksei V. Ulyukayev, was sentenced to eight years in jail in 2017 on what many saw as trumped-up corruption charges.
Mr. Putin’s spokesman, Dmitri Peskov, declined at his regular briefing on Tuesday to comment on the role played by Mr. Sechin in the rift with the Saudis. But it was clear that for years, the Rosneft boss was pushing for a split but making little headway.
This was in a large part because his pleas to reject the Saudi efforts to reduce production collided with a push by Mr. Putin to forge close relations with the kingdom’s notoriously headstrong de facto leader, Crown Prince Mohammed, and expand Moscow’s influence in a region long dominated by the United States.
When many world leaders recoiled from the crown prince after the 2018 murder and dismemberment of the journalist Jamal Khashoggi inside the Saudi Consulate in Istanbul, Mr. Putin embraced him. At a meeting of the Group of 20 in Buenos Airestwo months after the murder, Mr. Putin and the crown prince exchanged laughs and high fives.
A year later, Mr. Putin paid a visit to Saudi Arabia, the first by a Russian leader in more than a decade, hailing “the expansion of friendly and mutually beneficial ties.”
The bromance between the Russian and Saudi leaders, said Vladislav Inozemtsev, director of the Center for Research on Post-Industrial Societies, led Mr. Putin to underestimate the crown prince’s readiness to call Russia’s bluff.
In negotiations with democratic leaders, he said, Mr. Putin’s tight grip on Russian politics and economics gives him a big advantage, allowing him to quickly make credible promises, as well as threats. But that advantage vanished in Russia’s dealings with Saudi Arabia.
“Mr. Putin, actually, would very much like to be the M.B.S. of Russia,” Mr. Inozemtsev said, using a common abbreviation of the crown prince’s name. “But M.B.S. has a big advantage: He can treat his country as his personal property. This might be the point where Putin’s calculations went wrong.”
Russian officials have scrambled this week to reassure the public that they have the situation in hand, and the central bank intervened to slow the ruble’s fall in value against the dollar.
State television stations blamed Saudi Arabia for the ruble collapse and offered as solace expert commentary that the United States and Saudi Arabia would ultimately suffer more. “At these prices, by year’s end shale oil companies will fall apart,” state Channel 1 reported.
With hundreds of billions of dollars salted away in rainy-day funds, Russia is in many ways unusually well-positioned to withstand the impact of falling oil prices. But it has nonetheless been rattled by how fast and aggressive Saudi Arabia has been in responding to the breakdown of talks in Vienna.
Russia has been “very surprised that the Saudis engaged in a price war so quickly,” Mr. Guriev, the economist, said.
Orignially published in NYT.