When you read this, I’ll have picked up my parents from Milan Malpensa airport. The Plan is still in operation: they’ll be here, in Italy. It’s a day I’ve looked forward to for a long time. The next step is moving into our house, but that’s not until February.

I’ll tell you more about that in future editions of the Rude.

I thought I’d rerun something I wrote about Russia and Saudi Arabia in February this year for today's edition. Their plan is more apparent as well. They’ll do the opposite of Horace Greeley’s advice: they’ll go East, young man.

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In the meantime, I thought I’d throw out a geopolitical piece today, as my good friend and Rude reader Cheltenham Ian wrote me last night.

Ian and I have been friends for ten years. In fact, he poached me away from my old training company in 2013 to work for him in Singapore, covering the banks in Asia.

I have drunk beer with Ian in more cities than most people I know. We’ve traveled together that often. And if it weren’t for the government-mandated private sector shutdown, that number would be even higher.

But it’s been years since we’ve seen each other. So, we’ve had to resort to writing and talking on the phone, rather than beering it up in a good pub.

In today’s Rude, I answer Ian’s question more thoroughly than I did in my reply to him for your benefit.

What Was the Question?

Here’s what Ian wrote:

The angle that I don’t think is being written about much … Russia virtually stops selling to Europe directly etc. and starts selling a lot more to India and China at discounts. Builds a new distribution platform (sort of). All good so far. But are the key ME countries - especially Saudis - happy about this? Relaxed? I doubt it. A world in which Russia and Iran basically supply China. Middle East is relaxed at losing out? Not sure.

Russia butts into Saudi’s major large-scale growth markets. Leaving Saudi more dependent on shrinking ‘western’ markets – places actively focused on reducing hydrocarbon use (albeit slowly). I can’t believe long term that will be thrilling for the Saudis. They’d probably like to maintain a balanced customer portfolio. It’s probably OK for now … at $80+ per barrel. But the longer-term feels a bit ‘loose cannon’ stuff and must have ripples out into the future?

It’s also very interesting that the Middle East is choosing to ‘open up’ to western stuff - at the same time as Russia is choosing to ‘close off’ from the same. Feels like, again at $80, in the short term, not a lot is changing. But longer term my sense is Saudis will be thinking carefully about how they fit into that more binary world? Will it be comfortable for them to compete with Russia for China’s business? I wonder.

Let’s get a critical item out of the way first.

Why would Saudi sidle up to Russia, to begin with?

1. Economic benefits: As a major oil exporter, Saudi Arabia has a vested interest in maintaining stable relationships with major oil importers like Russia. The two countries have also discussed potential collaborations in other areas, such as investment, tourism, and nuclear energy.

2. Diversifying alliances: Saudi Arabia has traditionally been closely aligned with the United States, but recent tensions in the relationship have prompted the kingdom to seek out other partners. Developing closer ties with Russia gives Saudi Arabia more strategic options in a conflict or geopolitical crisis.

3. Syria conflict: Russia is a critical player in the Syrian conflict, which is of great concern to Saudi Arabia. By engaging with Russia, Saudi Arabia may hope to influence Russia's position on the conflict and potentially find a diplomatic solution.

4. Balancing against Iran: Saudi Arabia and Russia are regional powers concerned about Iran's influence in the Middle East. By allying with Russia, Saudi Arabia may seek to counterbalance Iran's regional influence.

That last one is a big one. So we’ll save that for a bit later.

Ian’s got the Russian oil rearrangement right except for one thing: Russia was already selling a shit-ton of oil to China.

Here are the 2020 stats on imports to China:

Source: https://oec.world/en/profile/bilateral-product/crude-petroleum/reporter/chn

They’re already the biggest two. Do the Saudis love that? Probably not. But what are they going to do?

A critical point to remember is this: Russia pipes its oil and gas to China. Saudi ships it. That’s much more time-consuming and expensive.

The distance between Saudi Arabia and China is quite large, so transporting oil by sea is the most practical and cost-effective method.

The oil is typically loaded onto tanker ships at Saudi Arabian ports, such as Ras Tanura or Yanbu, and transported through the Red Sea and then the Indian Ocean to ports in China, such as Qingdao or Shanghai. The journey can take several weeks, depending on the route and weather conditions.

There have been discussions in recent years about the possibility of building a pipeline to transport oil from Saudi Arabia to China. But as of now, there is no such pipeline in operation.

Remember, if China can figure out how to grow again, the Russians and Saudis can sell plenty more crude.

According to The Wall Street Journal, North Africa is also picking up the Russian slack; it’s not just Asia.

Credit: WSJ

Economic Interests Besides Oil

As for Saudi Arabia becoming more dependent on Western markets, Ian makes a good point by intimating it’s silly, considering the West is hellbent on getting rid of fossil fuels.

But that’s what the Saudi/Russian relationship is about. First, they work together to keep oil prices as high as possible.

Second, they’re trying to find other ways to trade to diversify their economies. The five main areas of bilateral trade are military equipment, agricultural products, construction materials, chemical products, and tourism.

The Iran Issue

Obviously, the Middle East isn’t one entity.

I imagine the Saudis are far more uncomfortable about China and Russia canoodling Iran into the SCO than Russia selling China oil. That’s a far bigger deal.

According to The Cradle, Russia and Iran just inked a new defense deal:

The news of a potential deal between Iran and Russia to supply Tehran with 24 Sukhoi Su-35 combat aircraft is significant and not a passing event, as tensions between the two states and western nations continue to escalate.

If Iran also sends short-range precision-guided ballistic missiles to Russia in conjunction with this agreement, those tensions will further intensify.

While there has been no official announcement yet about the deal, Iranian officials have expressed interest in acquiring the Su-30 and Su-35 fighter jets and the fifth-generation Russian Su-57.

On 15 January, a member of the Iranian National Security and Foreign Policy Committee, Shahryar Heidari, confirmed that the fighter jets will arrive next March and that Tehran requested other military equipment from Russia, including air defense systems, missile systems, and helicopters.

That’s big and certainly not something that would make the Saudis happy.

But Iran is the main country on the BRI; by a trick of geography, Saudi isn’t. That’s not fixable.

Credit: The Cyber Economist

Wrap Up

Russia and Saudi Arabia are building a relationship based on mutual benefits.

That’s just how any two countries should do it.

But there are complications. However, those complications are nothing to the alternative: being at the mercy of a West that hates fossil fuels and wants nothing more than complete subjugation, if not outright destruction.

Have a great day ahead!