MOSCOW: When Saudi Arabian oil installations sustained major attacks last month, Russia’s energy minister, Alexander Novak, was ready to ramp up production to fill the supply gap.

“If there had been a need we would have been ready for coordinated action,” Novak told Reuters in an interview in Moscow.

“We had a call with the Saudi minister ... He said they were managing. And I felt there was no need for any extraordinary measures.” In his seven years in the job, Novak has managed to persuade Russian oil companies to build significant spare capacity during output cuts, bringing his country into the ranks of swing producers - those able to adjust oil output in the short term to meet fluctuations in market demand.

Previously, only Saudi Arabia - and to an extent its neighbours the United Arab Emirates and Kuwait - had such an ability to cushion against oil-supply volatility.

So when Prince Abdulaziz bin Salman, the Saudi energy minister, called Novak two days after the attacks, he knew Russia could increase production fairly quickly by 0.3-0.5 million barrels per day, or 0.3-0.5pc of global supply, if Saudi production problems were to last longer than expected.

“We have said we have some 300,000 bpd of spare capacity but today our potential is even higher because companies kept investing (during the production cuts),” he said, confirming that Russian spare capacity was around 500,000 bpd.

Born in then-Soviet Ukraine, Novak, 48, spent the early part of his career in Norilsk in the Arctic, where he studied economics and worked for mining giant Norilsk Nickel before becoming local deputy governor and then deputy finance minister.

As one of Russia’s longest-serving energy ministers, Novak quickly expanded his portfolio to become the head of inter-governmental commissions with Iran, Saudi Arabia, Qatar and Turkey - a key area of diplomacy for President Vladimir Putin.

One of his biggest successes was the cooperation deal agreed with Opec in 2016. The move, Russia’s first such pact with the producer group in which both sides delivered on their pledges, saved oil prices from near-collapse and provided the Russian budget with tens of billions of dollars in additional revenues.

Prince Abdulaziz said last week that Russian cooperation with the Organization of the Petroleum Exporting Countries was first discussed when Novak attended Saudi King Abdullah’s funeral in January 2015.

OPEC Secretary-General Mohammad Barkindo said on Monday he was counting on Russia to help soothe tensions between OPEC members Saudi Arabia and Iran, whose relations have hit new lows after the Sept. 14 attacks.

Last week, Novak organised the first meeting since the attacks between Prince Abdulaziz and Iranian Oil Minister Bijan Zanganeh on the sidelines of Russia’s top energy forum.

Saudi Arabia has blamed regional rival Iran for the attacks, a charge Tehran denies.

“OPEC is a mature organisation. Despite differences on a bilateral level, it always manages to find consensus on a multilateral level,” Novak said.

Reserves monetisation

Inside Russia, Novak faces calls from the Finance Ministry for higher revenues from oil, juxtaposed against demands from companies such as Rosneft for lower taxes.

Rosneft is run by one of Putin’s closest allies, Igor Sechin. Novak, for his part, is not viewed as a member of Putin’s inner circle, mostly made up of old friends from his time in St Petersburg.

Nevertheless, Novak has persuaded the industry to stick to joint production cuts with Opec despite initial, vehement opposition from Sechin, who argued that Russia was losing market share to the United States, where oil output is booming.

Novak’s response was to tell oil companies they had more to gain from higher prices and lower output rather than pumping at will and seeing prices crash further.

Published in Dawn, October 8th, 2019