The Power of Oil Money

Last week there were two important announcements from Russia and it is hard to imagine that they are coincidental. In a move which surprised many military specialists, Vladimir Putin announced that the goals of his country’s five month operation in Syria were largely accomplished and that almost all of the troops and planes would be leaving Syria.

At more or less the same time, Russia and Saudi Arabia agreed to freeze crude oil production at the levels of January 2016 and while these levels are historically high, the prospect that Venezuela, Qatar, and other countries will join the freeze managed to drive oil prices up to their current level  of just over $ 40 per barrel.

As written in earlier posts, the oil price has slid spectacularly since June 2014 reaching a low of $ 30 per barrel and it has been unclear how to get the political will to move it up given the enmity between many of the parties such as Russia and Saudi Arabia in the case of Syria.

Syria: Stalemate or Solution?

According to Al Jazeera, the Syrian civil war has caused 250,000 casualties to date and the special UN envoy to the newly re-started talks in Geneva, Staffan de Mistura sees no plan B to a negotiated agreement. The country is, of course, in deep distress with millions of refugees and entire regions of the country occupied by the so called Islamic State as well as a patchwork of government militias and the nominal government of Bashar Al Assad. The regions Kurdish population has been defending itself against the Islamic State and declared its “autonomy” from the central government last week!

Saudi Arabia has been supporting Sunni groups working to ouster Bashar while Russia has been propping up his government. Russia’s exit from Syria is seen by some as a way of pressuring Bashar to come to terms in Geneva, establish a cease fire and work towards some type of transition government.

The Power of Money

With production in both Saudi Arabia and Russia in excess of 10 million barrels a day, it does not take an IESE MBA to realize that a $10 per barrel price rise means a huge amount of money for both countries even considering that much of the supply is in long term contracts and not on the spot market. What is interesting is that from a geo-political perspective, it did not seem that anything would shake Russia’s support of Bashar Al Assad and while the Russian planes were nominally in Syria to attack “terrorists”, it seems they did little damage to ISIS and instead systematically attacked Bashar’s armed opposition who have the full support of the Saudis.

An interesting question is if Russia withdrew its troops in exchange for the production freeze or if Saudi Arabia agreed to the freeze in exchange of the pull out?

Whatever the motives, the good news for Syria is that with both Russia, Saudi Arabia and the West pushing for a cease fire and real peace talks, they might actually happen. In the best of all worlds, Syrians of all types will come together to destroy ISIS, bring their people home and begin the arduous process of rebuilding their once beautiful country.