Sweet & Sour: Saudi Arabia may be replaced by Russia as top supplier to U.S.

The timing is interesting though only coincidental. Last week, the U.S. finally ended its military presence at Saudi Arabia's Prince Sultan Air Base south of Riyadh. This week, Crown Prince Abdullah bin Abdulaziz travels to Moscow to sign cooperation agreements with the Russians that will include joint efforts in the energy sector between the two biggest oil-producing nations on earth.

The Saudi Arabians remain the biggest suppliers of crude oil to the U.S. Russian oil production is fast catching up with Saudi levels and Moscow would dearly love to displace some of that Saudi oil which goes into U.S. refineries.

Accompanying the Crown Prince to Moscow will be Saudi Arabian oil minister Ali Al Naimi, whose relations with the Russian energy team has not always been very smooth. It took a lot of arm twisting last year to convince the Russians that it was in their interests to curb their rising production if they wanted higher prices for their oil.

The signing of a cooperation agreement on energy is expected to take away some but not all of the tension in relations between these two oil giants. The U.S. continues to court Russia seriously as an alternative supplier of crude oil with this particular administration very keen to lessen its dependence on Middle Eastern oil.

Although the U.S. occupation of Iraq theoretically puts it in control of the world's second biggest oil reserves after Saudi Arabia, recent acts of sabotage against Iraqi oil pipelines mean that Washington cannot take Iraq and its oilfields for granted. Security worries about Saudi Arabia and continued unilateral sanctions by the U.S. against Libya and Iran will strengthen Russia's argument that it can fill the void.

It is no surprise then to see that BP recently concluded a $6 billion deal to set up a joint venture with Russian oil company, TNK, in one of the biggest foreign investment deals Russia has seen since the collapse of communism. The deal has been seen by many as an endorsement in the Russian economy and the future of the oil industry there.

Next month, the American secretaries of energy and commerce will travel to St. Petersburg with a team of U.S. oil company representatives for talks on energy business cooperation with the Russians. The talks are part of a process agreed by presidents Vladimir Putin and George W. Bush last year to start an energy dialogue and encourage U.S. investment in the energy sector.

The two leaders are due to continue energy discussions at a summit in Houston later this month. Russia is busy expanding its pipeline network and building deep water harbours that can accommodate big tankers capable of carrying oil to U.S. markets.

Russia is still a long way from displacing Saudi Arabia as the top supplier of crude oil to the huge American market and, at the moment, Riyadh has the better hand. Recent official estimates of Saudi Arabian oil production and spare capacity show that the Saudis are sitting on a pretty powerful negotiating tool in the form of some two million barrels per day of spare capacity.

The writer is Middle East Editor of energy information and pricing service, Platts, a division of McGeaw-Hill Companies