LDN - Business

Exclusive: Saudi opens door to Black Sea grain with pest rule change as tightens Russian ties

[August 08, 2019] By Maha El Dahan and Polina Devitt

CAIRO/MOSCOW (Reuters) - Saudi Arabia will relax its bug-damage specifications for wheat imports from its next tender onwards, it told Reuters on Thursday, opening the door to Black Sea imports and strengthening ties with Russia beyond energy cooperation.

Russia has long sought access to Saudi Arabia's wheat market as Moscow tries to take further 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 the governor of state grain buyer SAGO, Ahmad al-Fares, told Reuters that the specifications will be relaxed to 0.5% from the next tender.

Saudi Arabia had been one of the last Middle East markets not dominated by Black Sea wheat and Euronext wheat futures <BL2Z9> fell in opening trade after the news, but later steadied as Chicago prices turned higher.

The change has wider implications as Riyadh, which regards the United States as its most important ally, moves closer to Moscow, with Russian President Vladimir Putin due to visit Saudi Arabia in October.

Cooperation has been boosted by recent OPEC and non-OPEC oil output deals, which have become an additional stimulus for wheat talks, a Russian official, who asked not to be identified, told Reuters.

Russia, which has lobbied heavily for the wheat specifications to be relaxed, is interpreting the change as a green light to go ahead and start supplies, he added.

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

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.

WARMING TIES

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

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A driver unloads a truck at a grain store during wheat harvesting in the village of Kamennobrodskaya in Stavropol region, Russia July 4, 2019. REUTERS/Eduard Korniyenko/File Photo

"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 Alboainain said.

Riyadh appears to be hedging its bets after coming under attack by U.S. lawmakers over the Yemen war and last year's murder of journalist Jamal Kashoggi 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," John Sfakianakis, chief economist at Gulf Research Center, said.

"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 a time when U.S. President Donald Trump was pressuring Riyadh, the de facto leader of the Organisation of the Petroleum Exporting Countries, 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.

"The trust which Saudi and Russia built on the back of oil negotiations and agreements has helped expand economic and commercial ties with and put Russia on the map of Saudi interest to boost Vision 2030 objectives," said Alboainain, adding that food security was one key goal.

(Reporting by Maha El Dahan in Cairo and Polina Devitt in Moscow; Additional reporting by Michael Hogan in Hamburg, Gus Trompiz in Paris and Marwa Rashad in Riyadh; writing by Nadine Awadalla and Ghaida Ghantous; editing by Veronica Brown, Jason Neely and Alexander Smith)

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