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Russia rolls out the red carpet for Saudi king with billion-dollar deals on the table

  • Russia is rolling out the red carpet for King Salman of Saudi Arabia this week, with the monarch leading a high-profile and highly significant delegation to Moscow that will see billions of dollars' worth of joint investment deals.
  • When King Salman landed in Moscow and traveled to the center of Moscow he was greeted with numerous billboards lining the road emblazoned with his own image and a message welcoming him to Russia in Arabic and Russian.
  • His visit marks the first ever state visit to Russia by a reigning Saudi monarch.

Russia is rolling out the red carpet for King Salman of Saudi Arabia this week, with the monarch leading a high-profile and highly significant delegation to Moscow that will see billions of dollars' worth of joint investment deals.

When King Salman landed in Moscow and traveled to the center of Moscow he was greeted with numerous billboards lining the road emblazoned with his own image and a message welcoming him to Russia in Arabic and Russian. His visit is certainly historic, marking the first ever state visit to Russia by a reigning Saudi monarch.

The Kremlin said that King Salman was due to meet Russian President Vladimir Putin on Thursday and "the leaders will consider joint steps to further develop bilateral cooperation in the trade, economic, investment and cultural-humanitarian areas." In addition, international issues including conflicts in the Middle East are expected to form part of the discussions between Putin and the Saudi ruler.

Saudi Arabia's King Salman bin Abdulaziz Al Saud (2nd R) walks upon his arrival at Moscow's Vnukovo Airport on October 4, 2017. Russian deputy prime minister Dmitry Rogozin is seen on the right.
ALEXANDER NEMENOV/AFP/Getty Images
Saudi Arabia's King Salman bin Abdulaziz Al Saud (2nd R) walks upon his arrival at Moscow's Vnukovo Airport on October 4, 2017. Russian deputy prime minister Dmitry Rogozin is seen on the right.

Putin and King Salman are set hold two meetings, a broader meeting and then a smaller more closed meeting which will be followed by a state dinner Thursday evening, according to a source within the Russian government who preferred to remain anonymous. The source said there was believed to be more than 100 people in the Saudi delegation to Russia, a state visit due to last four days.

The leaders are set to sign joint investment deals worth more than $3 billion on Thursday, Russian Energy Minister Alexander Novak told the Financial Times on Wednesday, including a $1.1 billion agreement for Russian petrochemical firm Sibur to build a plant in Saudi Arabia.

The visit is just the latest sign of increasingly cordial relations and closer economic and political ties between the two oil giants. The countries embarked on a closer relationship last year when Russia and the 14-member oil-producing organization OPEC – with Saudi Arabia being its de factor leader – announced they would restrict oil output in a bid to support global oil prices.

Deals, deals, deals

Since then, billion dollar arms deals and joint energy deals have been announced, the latest being the $1 billion joint energy investment fund, details of which could be finalized on Thursday after Putin and King Salman meet.

The Kremlin said that a "number of bilateral documents is planned to be signed following the talks." This is likely to refer to a $1 billion energy investment fund which is to be jointly managed by the Russian Direct Investment Fund (RDIF), Saudi Arabia's Public Investment Fund and Saudi Aramco. Kirill Dmitriev, the chief executive of RDIF, told CNBC that the royal visit this week was "historic."

"It's the first time a Saudi monarch has visited Russia, we've had different stages in our relationship but in the last couple of years there's been a real significant, dramatic improvement. This came after the Crown Prince Mohammed Bin Salman visited Russia (in May 2017) and met with President Putin and committed $10 billion to invest in Russia's direct investment fund," he said.

"Since that time we've done the energy deal and a number of other investments. So these have set the stage for a very successful visit for the king and a positive direction for Russia-Saudi relations," Dmitriev said.

The countries could also discuss extending the deal to curb oil output beyond the current date of March 2018 but experts do not expect that to be announced on Thursday, expecting that any deal to do that will be finalized and announced at OPEC's next official meeting on November 30.

US left out in the cold?

Economists and analysts have noted that Russia and Saudi Arabia's increasing closeness is down a desire from both sides to form a strategic alliance beyond energy, with political and economic cooperation likely to accompany closer energy deals.

"It's reported that this is the largest ever foreign delegation to Moscow," Chris Weafer, senior partner at Macro-Advisory, told CNBC Tuesday. "The Saudis see this relationship with Russia as being very much in their interest. King Salman doesn't do courtesy calls, he doesn't do photo opportunities; this (visit and relationship) makes a great deal of sense for Saudi Arabia. It needs to diversify its economy and its role in the global economy."

"This visit is very significant and comes at a time when U.S. influence in the Gulf is in the decline. Russia has taken the opportunity and has run with it in terms of energy cooperation," Weafer said.

King of Saudi Arabia Salman bin Abdulaziz Al Saud and Deputy Prime Minister of Russia Dmitry Rogozin walk past honor guards during an official welcoming ceremony at Vnukovo International Airport in Moscow, Russia on October 4, 2017.
Bandar Algaloud/Saudi Royal Council /Handout/Anadolu Agency/Getty Images
King of Saudi Arabia Salman bin Abdulaziz Al Saud and Deputy Prime Minister of Russia Dmitry Rogozin walk past honor guards during an official welcoming ceremony at Vnukovo International Airport in Moscow, Russia on October 4, 2017.

It also comes at a time when there is annoyance from Saudi Arabia at how aggressively the U.S. has developed its shale resources, according to Weafer.

"This upset the Saudis because the unofficial deal was that OPEC countries would invest in excess capacity to be able to make sure they could meet demand from the U.S ... But then the U.S. ditched OPEC and ditched Saudi Arabia," he said. Saudi Arabia is seen as a traditional ally of the U.S.

Don't mention the Middle East

Not all analysts are convinced that the meeting heralds a new era of total collaboration and harmony. For a start, there is the messy situation of Middle Eastern geopolitics to discuss, with Russia and Saudi Arabia at odds over Syrian President Bashar Assad and Iran's role in the region.

"Following Russia's intervention in Syria, the Kremlin is trying to develop a more holistic relationship with all the key powers in the Middle East to attempt to manage tensions among rivals. Saudi Arabia probably recognizes that unlike the U.S., Russia can play an important role in mediating with Iran,"Eurasia Group's Practice Head of Middle East & North Africa Ayham Kamel, Oil Director Greg Priddy and Eurasia analyst Zachary Witling said in a note Wednesday.

"On Syria, Saudi Arabia has now accepted the futility of military efforts to oust President Bashar Assad and will address its differences with Moscow on the issue. While Saudi Arabia is now seeking Russian assurances that Iran's influence in the country will be contained," the analysts noted.

"The more important concern for the Saudi leadership now is Yemen, where Riyadh is beginning to explore new solutions to significantly roll back its military campaign. Saudi Arabia will most likely seek Russia's cooperation in ensuring that the eventual balance of power in Yemen does not favor Iran."