#6162
[Second Issue of the Day]
#5
Novaya Gazeta
No. 21
March 2002
WE ARE FRIENDS WITH AMERICA: AGAINST WHOM?
OPEC, oil prices, and Russia's relationship with the United States
Author: Alexander Ilyin
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
NO MATTER HOW SERIOUS PROBLEMS WITH POULTRY MEAT AND FREE SPEECH ARE IN RUSSIA, OIL TAKES PRECEDENCE AS FAR AS THE UNITED STATES IS CONCERNED. RUSSIA ISN'T SAYING SAY ANYTHING SPECIFIC, ITS OFFICIALS ONLY REPEATING THAT THEY DO NOT KNOW WHETHER OIL EXPORTS WILL BE CUT, LEFT AS THEY ARE, OR INCREASED.
An OPEC conference took place in Vienna on March 15. The cartel resolved not to change production in the second quarter of 2002, and oil prices in London leaped to $25 a barrel soon afterwards. Moscow did not say anything specific about its planned oil exports between April and July.
Deputy Prime Minister Viktor Khristenko had previously promised on behalf of the government that exports in the second quarter of 2002 would not go up. At the same time, representatives of the oil sector and journalists known for their closeness to the Kremlin constantly claim that boosting exports is inevitable.
Why this ambiguity? Let us try to reason it out. The situation on the oil market is currently as follows. OPEC, Russia, Angola, Mexico, Oman, and Norway cut production by almost 2 million barrels per day after January 1, 2002. OPEC continues to insist on more and more cuts to prevent a price slump.
Russia isn't saying say anything specific, its officials only repeating that they do not know whether oil exports will be cut, left as they are, or increased.
OPEC leaders Rodriguez and Lookman in their turn approached stock exchanges with the attempts to persuade traders that Russia would probably leave its export unchanged in the second quarter of the year and that the market "will be particularly weak in the second quarter." Russia denounces all these statements. General mood in Moscow official circles is pointedly optimistic: the state of affairs in the major user countries (Europe and the United States) has improved, why restrict oil export then?
Price rise in January did result in a level favorable for Russia and the West - above $20 but below $25 a barrel. The latter figure would have suited a lot of OPEC states, with 70% or even 90% of their economies dependent on oil revenues. Despite the current growth, prices will probably fall again after the failure of the cartel's attempts to persuade Russia not to increase exports against the first quarter of the year. How far they will fall is another question. Prices went on growing - probably by inertia - after Rodriguez and Lookman visited Moscow on March 3-5. Moreover, the economic situation in the West, particularly in the United States, has improved somewhat.
Aware of alll this, Moscow feels confident. Saudi Arabia, the major oil exporter to the United States, cannot afford risks. For it, even a poor peace with Russia will be better than a price war. The United States has its own oil deposits, and oil produced there costs America no less than $18 a barrel. Support of national producers and stocking become pointless otherwise.
It means that $20-22 should be the best acceptable price for the United States. Besides, America is already pursuing its policy of influence with the Mideast - the operation in Afghanistan, threats to Iraq, etc. In a situation like that, Saudi Arabia feels jeopardized. Upping prices will be like opposing powerful Americans in the midst of the counter-terrorism operation.
The $20-22 bracket suits Russia as well. The logic is clear: as far as the West is concerned, Russia is becoming an important leverage against OPEC. This assumption explains the statements of Andrew Sommers ("... Russia may become at least the second major strategic supplier of oil to the United States") and Abraham ("A new energy order has been established" - following the September 11 tragedy).
As for the Russian government, cooperation with the United States will benefit it. On the one hand, this is a chance to sell oil at a profit with an emphasis made on the bulk and not on price or quality as Presidential Adviser Andrei Illarionov openly said. On the other, Russia may seriously undermine the cartel's positions and solidify its clout with the Mideast.
Dmitry Glinsky, an expert with the Institute of Global Economy and International Relations, commented when discussing relations between Russia, the United States, and the Arab world that Federation Council Chairman Sergei Mironov's refusal to meet with Yassir Arafat was not a coincidence at all. Rather than a personal initiative, it was probably another attempt to formulate a new line of behavior in the Mideast. It is a different matter altogether that the Kremlin - as always - put tactic above strategy.
Actually, Russia's behavior in the oil market doesn't depend on agreements with the United States alone. It also depends on the position of oil companies and situation on the domestic market. The situation in question is rather problematic. The market is saturated, storage facilities full, petrol prices down.
Companies mostly focused on the domestic market (like Sibneft) will be forced to turn to foreign customers soon. Export will go up, and prices will probably go down. LUKoil and the Tyumen Oil Company would have preferred protectionist preservation of export quotas because of the relatively high cost price. "The LUKoil is already operating in the United States," Sommers said. "Russian companies' interest in activities such as this is clearly growing."
Despite all the rhetoric, this sudden friendship with the Americans will continue because it objectively benefits fuel monopolists that rule Russia. No Olympic Games will ruin this friendship.
The same goes for the United States. Oil is more important than whatever human rights activists might be saying, more than whatever problems with free speech and poultry meat may arise. Oil is going to take precedence until the situation in the global energy market changes.
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