Saudi Arabia and Russia are working on a historic long-term pact that could extend controls over world crude supplies by major exporters for many years to come.
Saudi Crown Prince Mohammed bin Salman told Reuters that Riyadh and Moscow were considering a longer deal to extend a short-term alliance on oil curbs that began in January 2017 after a crash in crude prices.
“We are working to shift from a year-to-year agreement to a 10-20 year agreement,” the crown prince told Reuters in an interview in New York late on Monday.
“We have agreement on the big picture, but not yet on the detail.”
Russia, never a member of the Organization of Petroleum Exporting Countries, has worked alongside the 14-member cartel during previous oil gluts, but a 10-20 year deal between the two would be unprecedented.
Top OPEC producer Saudi Arabia recruited Russia and other non-OPEC countries to help drain a glut when oil prices collapsed from over $100 a barrel in 2014 to below $30 in 2016.
Crude has since recovered to $70 but fast-rising output from U.S. shale producers has capped prices.
“This is all about whether the arrangement is a short-term expedient to deal with this particular crisis in the oil market, or whether it reflects a realignment in world oil,” said oil historian Daniel Yergin, vice-chairman at consultancy IHS Markit.
“OPEC countries want to find a way to institutionalize this relationship rather than to have it be a one-shot deal.”
News of the potential oil alliance comes at a time when Riyadh and Moscow have worked to cement an economic relationship despite being at odds over the conflict in Syria, where they back opposing sides.
Riyadh supports rebels fighting Syrian President Bashar al-Assad’s army, while Russian and Iranian forces have backed Assad – meaning that Russia effectively sides with Iran, Riyadh’s regional arch-foe.
Last October, Saudi King Salman became the first sitting Saudi monarch ever to visit Russia. He led a delegation to Moscow that agreed to joint investment deals worth several billion dollars, providing much-needed investment for a Russian economy battered by low oil prices and Western sanctions.
Despite their differences in the Middle East, Russia and Saudi Arabia have been drawn together by a common interest in propping up flagging world oil prices, and by the fact that Moscow, since its military intervention in Syria, has clout in the Middle East that other countries in the region cannot ignore.
The crown prince predicted that world oil demand would not peak until 2040, despite advances in renewable energy technologies and the electric vehicle.
In an attempt to end Saudi Arabia’s reliance on oil, he is leading a push to diversify the Saudi economy away from oil and gas by 2030.
Riyadh plans to raise funds through the flotation of a 5 percent stake in the state Saudi oil company Aramco. Time is running out for an initial public offering this year but the crown prince said the IPO could still take place at the end of 2018 or in early 2019, depending on financial market conditions.
Saudi Oil Minister Khalid al-Falih said last week that documentation was ready but that a venue for the IPO had not yet been decided. The New York stock exchange is still in the running for the IPO, alongside London and Hong Kong, but Falih said there was a risk of a “frivolous” legal action if Aramco were listed in the United States.