Salman Fishing in the Yemen: Saudi Arabia and Russia deal to stabilize oil price

Remember, folks, you read it here first: Asia Unhedged called the bottom of the oil market on April 8 under the headline, “Will Russia and Saudi Arabia agree to stabilize the oil price?” Our take at the time:

A quiet, partial rapprochement between Saudi Arabia and Russia could change the dynamics in the oil market. Hence the sudden short-covering in the crude market.

Oil has been roaring back, and geostrategic considerations explain at least part of the price recovery (the weakening dollar, which Asia Unhedged also predicted, is another factor).

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In Asia Times today, M.K. Bhadrakumar explains the reason that Russia did a 180-degree turn over the delivery of its S-300 air defense system to Iran:

Clearly, the Saudis hope to strike a deal with Putin over Yemen so as to isolate Iran. They are preparing for a showdown with Iran, as the scrape yesterday in the Yemeni skies foretell. This is not a time the Saudis would like to see the Russians beefing up Iran’s air defence system.

Now, one thing Saudis can do for Russia is to calibrate the oil prices to move up, which is a critical issue for the Russian economy.

The Russians are chess-players, and in chess, the threat is mightier than the execution. Russia has the power to change the strategic balance in the Persian Gulf. It doesn’t have a lot of pieces to play, but Russian missile technology is an important factor. Russia offered an older version of its air defense missile system to Iran (China is getting a newer version, the S-400) as soon as the Obama administration struck its nuclear deal with Iran. That served a lot of Russian objectives (including putting a cream pie in Washington’s face). But it also gave Russia a bargaining chip against Saudi Arabia.

On April 20, Russia’s President Vladimir Putin invited Saudi King Salman Bin Abdulaziz to Moscow. No Saudi King has visited Russia before, and something big presumably is afoot. Whatever it is, it’s good for oil.

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