RUSSIA-SAUDI TIES REMAIN FIRM BUT PUZZLING

C O N F I D E N T I A L MOSCOW 001691 SIPDIS E.O. 12958: DECL: 06/13/2018 TAGS: PGOV PREL ECON ETRD SA RS SUBJECT: RUSSIA-SAUDI TIES REMAIN FIRM BUT PUZZLING Classified By: Political M/C Alice G. Wells for reasons 1.4 (b/d). ¶1. (C) Summary: According to the MFA, Russia-Saudi relations remain "firm" despite the tough stance the Saudis took during bilateral negotiations on Russia's WTO accession. Agreement was reached only after a personal phone call from Putin to King Abdullah. The MFA said that Russian Railways' failure to secure a $800 million contract to build a new rail line in Saudi Arabia was not a reflection of troubled ties. The MFA also denied any stress in the bilateral relationship over the recent political crisis in Lebanon, affirming that Moscow and Riyadh informed each other of steps taken to help settle the situation. The Saudis did not ask Russia to press Syria and Iran to reign in Hizbollah. A potential Saudi purchase of Russian military equipment is still under discussion, with the MFA reluctant to provide any details. End summary. Russia Puzzled Over Saudi Approach to WTO -------------- ¶2. (C) MFA Counselor for the Persian Gulf Rashid Izmailov told us on June 10 that although Russia-Saudi relations remained "firm," the GOR was puzzled by the approach taken by the Saudis over Russia's WTO accession, particularly Riyadh's demand that Russia raise domestic prices on oil and gas. In the GOR's view, there was no economic benefit in this for Saudi Arabia since it did not compete with Russian energy firms in the domestic market, and few Saudi companies competed with Russian manufacturers that benefited from low energy prices. Izmailov said that the deciding factor in reaching an agreement on June 3 was a personal phone call Putin made to King Abdullah. (Note: We understand that in the end, the Saudis dropped their demand that Russia increase its domestic oil and gas prices, but reserved the right to raise the issue again in the context of multi-lateral negotiations in Geneva over Russia's Working Party report, a crucial part of the accession package. End note.) Russian Railways Did Not Lose Saudi Contract -------------- ¶3. (C) Izmailov said that to the contrary of speculation that appeared in the Russian press, the MFA knew of no connection between the WTO accession negotiations and Russian Railways' (RR) May 21 announcement that it had "lost" a $800 million tender to build a new rail line in Saudi Arabia. RR President Vladimir Yakunin appeared to blame this predicament on the state of Russia-Saudi ties when he told the press that losing the contract was the result of "a problem in international relations." RR announced in January that it had won the contract after learning that its bid on the tender had been viewed more favorably than the competitors', but Izmailov said that the deal was never formally secured. In May, he noted, the Saudis announced that they had not chosen any of the bids received and would begin taking new bids to construct the 323-mile rail line. No Stress Over Lebanon -------------- ¶4. (C) Izmailov told us that that neither the drawn out nature of the WTO negotiations nor the RR situation reflected problems in Russia-Saudi relations. He denied that there had been any trouble with the Saudis over Russian reaction to the recent Lebanese political crisis. The Saudis did not ask Russia to press the Iranians or Syrians to reign in Hizbollah. Moscow and Riyadh were in contact about the situation and simply informed each other of the actions they were taking to help settle the crisis. Saudi Arms Deal Still in the Works -------------- ¶5. (C) Izmailov said that the Saudi purchase of Russian military equipment was still under discussion. He did not know any details regarding the size of the purchase under consideration, nor could confirm the accuracy of a press report that Rosoboronexport was preparing a $4 billion contract that included tanks, APCs, helicopters, and medium range surface-to-air missiles. RUSSELL