Putin’s gambit keeps trusted aide top energy guy

In the second government reshuffle this year, Russian President Vladimir Putin has promoted Alexander Novak to deputy Prime Minister, leaving the post of energy minister to RusHydro CEO Nikolai Shuglinov. However, Novak is expected to remain Moscow’s point man at the Organization of Petroleum Exporting Countries (OPEC) and provide predictability in the oil market, Chris Weafer, the founding partner of Macro-Advisory in Moscow, told New Europe by phone on November 12.

“I think that essentially Novak will continue to be the person in charge of oil and gas while his replacement in the energy ministry has a lifelong career in the electricity sector,” Weafer said, adding that he does not expect Shuglinov to have any new agenda in the energy sector. He also pointed out that the new Russian Energy Minister is 69 years old and might be replaced in a couple of years. “He is seen more of an interim appointment. So, Novak has been promoted to a more senior role but it doesn’t represent any change whatsoever in Russia’s energy policy,” Weafer said.

Novak, 49, has been energy minister since 2012. He has led Russia’s negotiations with the OPEC and played an important role in a deal to cut global oil output, first signed in 2016. He also helped Putin resolve the oil price war with Saudi Arabia this past spring.

Since then, the coronavirus pandemic has led to a deep fall in demand and steep drop oil prices, leading to further decisions to reduce output by OPEC and non-OPEC leading oil producers led by Russia, a group called OPEC+.

Novak told lawmakers on November 10 it was necessary to continue cooperation with other leading energy-producing countries in order to ensure market stability.

Weafer told New Europe that the arrangement with OPEC+ and energy policy generally is essentially run out of Putin’s office with Novak as the facilitator. “Now that has been promoted, I don’t see that changing at all. Russia’s energy policy will remain unchanged and Novak will continue to be the point person particularly for OPEC+,” he said.

According to the Macro-Advisory founding partner, Putin supports the OPEC+ agreement. “For Putin, it represents not just good economics because he has said publicly that it’s better to have a smaller volume at a higher price, that Russia earns more money that way, than continuing to pump as much as you can and take your chances with a volatile oil price. He much prefers the predictability that comes with a more stable oil price even with the reduced volume,” Weafer said.

“Russia’s budget and economy are much better off with that arrangement but it also very good politics because of Russia’s activities in the Middle East, there is very good cooperation between Russia and Saudi and the Emirates and some of the other Gulf states and that’s very important for Russia. It’s important with what they want to achieve in Syria, it’s important with what they are doing in Libya,” he said.

Novak’s promotion could also signal to the Saudis the importance that Moscow views their relationship. “The OPEC+ deal represents good economics and good politics and in that sense Novak’s appointment maybe even strengthens that because it he is more senior but it certainly doesn’t deteriorate it. Cooperation with OPEC+ I think remains very solid,” Weafer said.

Following his appointment, Novak said he would oversee Russian energy strategy in tandem with Shulginov. Last week, the top executives of Russia’s oil companies reportedly discussed the future of the OPEC+ deal with Novak, including an option to extend it until March 2021, instead of increasing production from January as OPEC+ earlier agreed.