Smart Economy


Economic factors driving Saudi-Russian relations

Dr. Diana Galeeva

 Update: 14:16, 4 April 2024

Economic factors driving Saudi-Russian relations

In February, Russia and Saudi Arabia celebrated the 98th anniversary of the establishment of bilateral links. In 1926, the Soviet Union became the first state to establish full diplomatic relations with the Kingdom of Hijaz and Nejd. Today, with President Vladimir Putin having confirmed his stay in power for the next six years and with Crown Prince Mohammed bin Salman also named as prime minister by King Salman in 2022, both leaderships look stable.

What indications can be seen of similar continuity in the recent development of relations? How have engagements between the two countries’ leaderships shaped relations? What is the key driver behind current relations and what might we expect in the future?

Although relations between modern Russia and Saudi Arabia were established in 1992, bilateral relations reached a new level in 2017, under the leaderships of King Salman and Putin. The first visit of the Saudi monarch to Moscow was widely acknowledged as historic. The Guardian newspaper stated that it “heralds (a) shift in global power structures.” The visit resulted in the signing of more than 15 cooperation agreements worth billions of dollars, covering the fields of the military, oil and space exploration.

At the time, the Kingdom wanted to purchase Russia’s S-400 missile defense system, although the deal was not finalized, as it later bought the American Terminal High Altitude Area Defense system for $15 billion. In so doing, it was following an overall policy of “hedging” and developing relations with all powers.

Nonetheless, this prevarication did not harm positive developments between Russia and Saudi Arabia. Putin visited the Kingdom in 2019 — his first visit since 2007. It was concluded with oil agreements. Putin also visited both the UAE and Saudi Arabia in 2023. Before his arrival, the Russian media highlighted a Bloomberg article titled “Putin Plans visit to Gulf in wake of OPEC+ deal on output cuts,” which suggested that his trip to Saudi Arabia indicated the failure of US efforts to isolate Moscow. This had a similar tone to the 2018 coverage of friendly interactions between Putin and the crown prince following their famous high-five at the G20 Summit in Argentina, when the Kingdom was also facing pressure.

How have such interactions benefited the two countries? Economic gains are undoubtedly the driving factor behind Saudi-Russian relations. As a result of its current geopolitical competition with the collective West, Moscow considers Riyadh to be an essential partner in shaping the global energy sector and thereby boosting its gross domestic product, which is vital given the canceled energy contracts with Western countries and the sanctions it is under.

At the same time, the Saudis have followed new nationalist foreign policies, putting their own priorities, especially economic ones, first. This has allowed the establishment of win-win alignments with Moscow.

OPEC+ deals, led by Russia, Saudi Arabia and the UAE in October 2022 and April and June 2023, have helped to boost energy revenues. The outcomes of these deals — the foundations of which were negotiated during the official visits of the two leaders — have become especially significant for Russia. In January 2023, Russian Deputy Prime Minister Alexander Novak stated that revenues from oil and gas had increased by 28 percent in 2022. The fuel and energy complex also took on a leading role in the formation of Russia’s GDP in 2023 (more than 27 percent). The GDP of Saudi Arabia has also been increasing, from $874 billion in 2021 to $1.1 billion in 2022 and $1.3 billion last year.

Saudi Arabia has become important to the diversification of Russia’s economy under Western sanctions. For Riyadh, the agreements fit its own diversification initiatives. For example, exports of Russian agricultural products to the Kingdom increased by 49 percent in 2022, approaching $1 billion.

Saudi Arabia has been invited to join the BRICS grouping, in which Russia plays an essential role along with China, Brazil, India and South Africa. Rather than considering the decision to potentially join the bloc as political, it seems that Saudi Arabia is prioritizing the economic benefits. Foreign Minister Prince Faisal bin Farhan has said that BRICS was “a beneficial and important channel” to enlarge economic collaboration.

Russian officials also appreciate this position. During his February address to the Federal Assembly, Putin noted: “The BRICS countries, taking into account the states that have recently become members of this association (Argentina, Egypt, Iran, Ethiopia and the UAE), will create about 37 percent of global GDP (by 2028), while the G7 figure will drop below 28 percent.”

In sum, the foundations put in place by the current leaders in recent years will bring further positive dynamics to Saudi-Russian relations, and this will diversify. In addition to hard power, both countries might benefit from soft power as a mechanism for collaboration.

Russia can be further integrated into the Saudi economic diversification program known as Vision 2030. For example, it could host a bilateral “Russia in Saudi Vision 2030” forum for business and investment stakeholders, with exhibitions on the industrial potential of regions in both Russia and Saudi Arabia.

Furthermore, the use of religious soft power could come into play. It is one of the goals of Vision 2030 to put the Muslim world center stage. More could be made of Russia’s Muslim regions in building relations. Russia last year launched a pilot program of Islamic banking and finance, so Saudi banks could be licensed to carry out these operations.

In addition, sport can be a soft power tool. Saudi Arabia’s Public Investment Fund owns Newcastle United F.C. and may be interested in investing in different sports, including in Russia. For example, the Traktor ice hockey team, which is based in Chelyabinsk, could be a target, with the goal of making a Saudi-backed team a leader in the Kontinental Hockey League.

Considering culture as a tool of soft power, Saudi National Day — Sept. 23 — might be celebrated with cultural events in Russia, and vice versa. In addition to economic deals, these initiatives will help further the two countries’ political and cultural integration.

Source: Arab News.