Posted on 11/27/2001 11:35:18 AM PST by Pokey78
Down, down, down slide the oil prices. Last year they soared above $30 a barrel. This year, thanks to the international economic slowdown, they've dropped as low as $11. At the moment, they're hovering around $17-$18 a barrel. OPEC is trying to raise prices by cutting production and is browbeating non-OPEC members around the world to go along. Norway has agreed. So has Mexico. So has Oman.
Russia has not agreed however—making it the only major oil exporter not to have pledged a significant decrease in production. To date, Russia has offered a cut of 50,000 barrels, well below the half-million barrel-cut that OPEC wants. Without Russia's cooperation, OPEC won't go ahead with its own. Without Russia's cooperation, oil prices will stay low. Without Russia's cooperation, in fact, even Russia suffers: Crude-oil exports account for a quarter of Russian government revenues, and every $1 decrease in the price of an oil barrel cuts almost $1 billion in Russian earnings. Why, then, won't Russia cooperate?
Those who prefer the deepest, darkest, most dramatic answers to this question already suspect the existence of a plot: a Russian conspiracy to destroy OPEC in general and to destabilize Saudi Arabia in particular, the better to increase Russian market share. If this is the case, Russia may well win any game of chicken: Russia's 2002 budget is being written on the basis of a price of $18.50, but could survive, with some borrowing, if prices stay above $15 (or, according to some, above $12). The Saudi budget, on the other hand, is in trouble at anything lower than $21. Publicly, there is no love lost between the two countries or between Russia and OPEC. An economic adviser to the Russian president said recently that OPEC is a "historically doomed organization" and that "Russia is in a much more advantageous position." This week, a senior Saudi oil official also expressed diplomatically worded anger at the lack of Russian cooperation, warning of a price drop so severe that it is "difficult to speculate on its extent."
An advanced version of this conspiracy theory has the United States in on the plot to destroy the Saudis. Admittedly, such an intrigue would have a certain historical symmetry to it: There are those who believe that the United States, in league with Saudi Arabia, also tried (successfully) to destroy the Soviet Union in the 1980s by lowering oil prices. And certainly it is true that in the wake of Sept. 11 America's close relationship with the Saudis is under tough scrutiny. OK, they're our allies—but who needs an ally whose citizens fly airplanes into American buildings? Destabilizing the regime is a dangerous game, but how much worse could its replacement be? Osama Bin Laden is Saudi after all—and so is his money.
Of course, even if the game isn't the out-and-out destruction of Saudi Arabia, the existence of tacit U.S.-Russian cooperation can't be ruled out. If it suits the Russians to produce more oil at the moment, it also suits the recession-stricken United States to buy oil at lower prices. In the long term, the United States is quite keen, for political reasons, to reduce its dependency on Middle Eastern oil. Russia is equally keen, for political reasons, to make everyone more dependent on Russia. Those who believe that there is U.S.-Russian collusion to increase oil exports from Russia and other ex-Soviet nations to the West can also point to the Caspian Pipeline Consortium, the first successful Russian-Western-Kazakh pipeline venture, which just happens to kick in this month.
There may be more pipeline possibilities as well. I have no patience whatsoever for those who claim the U.S. government is fighting in Afghanistan because it wants to build a pipeline across the country, largely because there is no evidence that, before Sept. 11, anyone in the U.S. government even remembered Afghanistan's existence. On the other hand, I doubt whether the Russians ever forgot about the idea. Visions of a new pipeline from Turkmenistan to the Indian Ocean may well have been behind their decisions to arm, feed, and provide ammunition to the Northern Alliance—and in Russia's recent, unilateral decision to recognize the Northern Alliance as the "legitimate government" of Afghanistan. If we had not only Russian and Kazakh oil but Turkmen oil as well, would we need OPEC at all?
There is a third possibility, of course, which is that the Russian government has so little influence over its oil producers that it couldn't cut production even if it wanted to. A few weeks ago, a Russian government minister did actually admit that the slump in crude prices meant it was "time to think about [cutting] the budget." He was immediately hushed up by a colleague, who described his comments as "politically unacceptable."
Perhaps—but they may also have been factually accurate. The truth is that whatever the government thinks about it, high production levels, even coupled with lower prices, suit the powerful oil barons very well indeed. Many of them have invested heavily in exploration and new production in recent years and are trying to raise production from the post-Soviet slump. Many are also consciously trying to clean up their public images in preparation for the flotation of their companies on Western stock exchanges. Presumably the companies are worth more—and the owners' shares are worth more—if their production capacity is higher. Given the choice between the welfare of their countrymen and the size of their wallets, Russian oligarchs have never had much trouble making up their minds.
Anne Applebaum, a journalist based in London and Warsaw, is a regular contributor to the London Sunday Telegraph and is at work on a history of Soviet concentration camps. You can e-mail her at foreigners@slate.com.
Thursday, Nov. 22, 2001. Page 7
Combined Reports President Vladimir Putin's top economic adviser said Wednesday that Russia should resist OPEC's calls to reduce oil output as lower prices for crude, its main export, benefited the economy.
"Question: What should we do with OPEC? Answer: Nothing, because OPEC is an unreliable partner, because OPEC is a historically doomed organization, because in the price war declared against us, Russia is in a much more advantageous position than OPEC," Andrei Illarionov told a news conference.
Illarionov, who often takes strong views and has earned himself the reputation of a dissenter, is known to have the president's ear -- and Putin seems to listen to much of his advice. [note--fine with me!]
at any rate, welcome aboard russia. visit our ranch anytime.
http://www.eia.doe.gov/emeu/cabs/rusexp.html
Oct 2001 Russian Oil and Gas Report
Or maybe there is even more important motive than economy. The Wahhabi subversives who planned to destroy Russia starting with Chechnya and Dagestan had their main base in Saudi occupied Arabia (yes, "the head of the snake" is not in Afganistan). After WTC Americans/NATO lost their enthusiasm to support the KLA type adventures and even the old fox Shevardnadze seems to be giving up ( Georgia’s Leader Wants to Be Friends with Russia Again ).
So now is time for Russia to protect herself from ending up like Serbs or Macedonians, even if it can cost some oil revenue.
Russia plans to make it up with 'Volume'
In a truly soft market, it can't cut production enough to drive up prices to a break-even level.
Conspiracy theorists will continue to attribute market moves to grand political schemes, but the truth is simply that you can't fool the market.
As the saying goes, markets, like animals, can be dangerous when cornered...
But that would mean prices over $50 per barrel sustained. That's not going to happen in the near future unless something catastrophic occurs in the Middle East. Even so, $50 oil would have a very negative effect on the economy which would further reduce demand for oil and tend to soften prices.
Oil independence and cheap oil prices are mutually exclusive concepts.
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