For most outside observers of the Kremlin, Russia’s policymaking process is an inscrutable monolith, with decisions taken exclusively by President Vladimir Putin and any dissent stifled behind closed doors.
In reality, however, within the Russian political elite, there is a good number of competing political interests and visions which clash on a regular basis. Policies are often the product of Putin playing a balancing act between these different groups.
Two recent controversies over Russia’s relationship with longtime energy rival Saudi Arabia show that these days there are widening political and ideological divisions between two infleuntial groups in particular: Soviet-style interventionists and an increasingly vocal cohort of conservative isolationists. The tensions between them threaten to upend one of the most successful facets of Putin’s Middle East policy.
The first controversy involves Russian company Novomet-Perm, a subsidiary of the state-owned fund Rusnano and a major producer of oil extraction equipment. In June last year, its general director, Maxim Perelman, announced that investment “talks” were ongoing with the Saudis for a potential deal. Then in October, Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF) revealed a plan for a joint purchase with Saudi oil company Aramco of Rusnano’s 30.76 percent stake in the company. The Russian side, it seemed, was particularly eager to get the deal done.
Attempts to sell stakes in Novomet to foreign buyers had failed in the past and the company was struggling to turn a profit amid concerns over the low quality of the oil pumps it produces.
It seemed that a deal with Aramco would not only save the manufacturer, but also inject much-needed cash into Russia’s state coffers, boost its weak foreign direct investment (FDI) record and solidify the Russian-Saudi rapprochement.
Although the Russian economy officially came out of recession in late 2016, it continues to stagnate, with real disposable incomes declining for the fifth consecutive year and anaemic gross domestic product (GDP) growth likely to remain below the world average for years to come. The country has also suffered a sharp drop in the FDI after Western countries imposed sanctions on Moscow in the aftermath of the 2014 annexation of Crimea.
The deal indeed seems quite lucrative, especially for the Russian side, but it may never see the light of day. It’s likely that Russia’s economic regulator, the Federal Antimonopoly Service (FAS), will strike it down due to national security concerns. The agency classified Novomet as an asset of strategic value after it scuttled an earlier bid by US oil corporation Halliburton to buy a stake in the company.
Over the past few years, conservative isolationist forces have pushed back against the opening up of the Russian economy, successfully expanding restrictions on FDI and foreign companies operating in Russia. Under their influence, amendments to the Strategic Enterprises Law and Foreign Investments Law were passed which make the sale of companies like Novomet more difficult.
Despite the recent historic advancements in Russian-Saudi relations, many conservatives in Moscow still see Riyadh as a major rival in the energy sector and are concerned about its close alliance with the United States. In the framework of restrictive legislation and under pressure from certain political circles, the FAS is unlikely to deem Aramco a suitable buyer. It will reject it or delay its decision until the deal falls through.
Earlier this month, US-based oilfield services firm Schlumberger had to scrap its bid to buy the Eurasia Drilling Company under similar circumstances.
Regulatory hurdles are not the only potential problem on the horizon for the Russian rapprochement with the House of Saud. According to reports, Rosneft CEO Igor Sechin, who is said to be close to President Putin, wrote a letter, expressing his disapproval of Russia’s agreement with OPEC – particularly with Saudi Arabia – to cut oil output, which, according to him, hurts Russia and benefits the US.
Over the past two years, Moscow and Riyadh have closely coordinated efforts to stabilise oil prices. Most recently, Putin agreed to temporarily boost oil production at Washington’s request to prevent a spike in oil prices as US sanctions on Iran were reimposed, curbing Iranian oil exports.
The Russian president, as well as the interventionist camp within the Russian government, sees cooperation with Saudi Arabia on the oil market as a strategic asset in his efforts to expand Russian positions and influence in the Middle East. However, not everyone within the political elite shares this vision.
Even though Putin successfully managed to avoid in Syria another military quagmire like the Afghan war, many members of the political elite remain sceptical about the need to maintain a significant presence in the troubled region.
Some of these sceptics see increasing Russian engagement in the Middle East as potentially dangerous, given the troubles the US has faced since its own military intervention in 2003 and its years-long struggle to pull out of the region. With major local players, such as the Saudis and Iranians, feeling less restrained in their antagonism, Russia might soon find itself in the middle of a sectarian conflict, forced to choose sides.
This domestic standoff over bilateral relations with Saudi Arabia reflects broader tensions between two influential circles with opposing views on Russia’s appropriate role in the Middle East and the world. On one side, proponents of Soviet-style interventionism seek to sustain global power status at any cost. On the other, isolationists who echo “Russia first” sentiments are terrified about the possible return of international overreach. With more Russians growing dissatisfied with the direction in which the country is going, this wave of isolationist sentiment is set to grow.
Over the next few years, the standoff between these two camps will ultimately determine how far rapprochement with Saudi Arabia can go and whether Russia will continue on its quest for superpower status in the global political arena.