First oil, now food: Saudi Arabia and Russia grow closer

Saudi Arabia will relax its bug-damage rules for wheat imports from the next tender onwards, its government has told the Reuters news agency.

The statement on Thursday opens the door to Black Sea imports and strengthens ties with Russia beyond energy cooperation – which has already been growing.

Russia has long sought access to Riyadh’s wheat market, as Moscow tries to take more market share in Middle Eastern and North African wheat markets from the European Union and United States.

Wheat from the Black Sea did not previously meet Saudi specifications for zero-pest damage. But Ahmad al-Fares, the governor of the Saudi Grains Association – the state buyer – told Reuters that the threshold will be relaxed to 0.5 percent from the next tender.

Saudi Arabia had been one of the last Middle East markets not dominated by Black Sea wheat. Euronext wheat futures fell in opening trade after the news, but later steadied as Chicago prices turned higher.

The change has wider implications since Saudi Arabia – which regards the US as its most important ally – moves closer to Russia.

Vladimir Putin, the Russian leader, is due to visit Saudi Arabia in October. Cooperation has been boosted by recent oil output deals with the Organization of the Petroleum Exporting Countries (OPEC), though Russia is not a member.

Russia, which has lobbied heavily for the wheat specifications to be relaxed, could soon go ahead and start supplies.

“This could be a game-changer, and is moving the goalposts for German and Baltic States’ wheat markets,” one European trader said of the development. “Without this exclusivity, German and Baltics’ wheat will have to price themselves into other markets, probably targeting Algeria.”

Algeria effectively precludes wheat of Black Sea origins due to a low bug-damage requirement, while Iraq mainly sources its wheat from Australia, the United States and Canada.

‘Reshaping the economic ties’

Analysts said the move was a further sign of warming ties between Saudi Arabia and Russia, since King Salman visited Moscow in 2017 as the first Saudi monarch to do so – although the two countries stand on opposite sides on Syria and Iran.

“Reshaping the economic ties with many countries east and west is aimed at creating balance and this is a good policy approach by the crown prince [Mohammed bin Salman],” Saudi economist Fadl al-Boainain said.

Riyadh appears to be hedging its bets after coming under attack by US lawmakers over the Yemen war and last year’s murder of journalist Jamal Khashoggi by Saudi agents.

“It’s to be expected in many ways, given that Russia and Saudi Arabia have been cosying up over the last four years,” said John Sfakianakis, chief economist at Gulf Research Center.

“Since they buy barley from Russia anyway, it makes sense to buy wheat as well, as they diversify their price and supply options,” he told Reuters.

The two oil giants, once seen as rivals in crude markets, have joined forces to prop up oil prices. At the same time, US President Donald Trump has been pressuring Riyadh, the de facto OPEC leader, to pump more crude and put a lid on prices.

Russia’s sovereign wealth fund and its Saudi counterpart have also agreed to jointly invest in projects, as Crown Prince Mohammed tries to implement an ambitious economic diversification plan.

Al-Boainain said that the trust “Saudi and Russia built on the back of oil negotiations and agreements has helped expand economic and commercial ties”, adding that food security was a core goal in the relationship.