Fueling the Future: The Prospects for Russian Oil and Gas

Following the terrorist attacks against the United States on 11 September 2001, growing tensions in American relations with Middle East states coincided with the efforts of the Organization of Petroleum-Exporting Countries (OPEC) to impose production cuts to shore up petroleum prices. U.S. plans to overthrow Saddam Hussein's regime in Iraq, the worsening crisis in Israel and Palestine, a backlash in Saudi Arabia against long-term U.S. military presence, and the possibility that it would become the staging ground for an attack on Iraq all led to questions in Washington, D.C., about the wisdom of continuing to rely on Middle East oil. Discussions of possible alternatives threw the spotlight on Russia, along with other oil-producing areas in the Caspian Basin and West Africa. Since 1998, Russia's oil industry has experienced a significant revival after a cataclysmic collapse in output in the 1990s. Some of its oil companies have achieved significant production increases, produced ambitious plans to break into new energy markets, expanded into international upstream and downstream operations, and launched a public relations offensive to present themselves as players in the global economy. (1) Against this backdrop, Russia, which is not a member of OPEC, mounted a fierce public resistance to the organization's demands that it cut its production and exports. Ultimately, in December 2001, agreed to a token export reduction of 150,000 barrels per day for the winter quarter. That reflected normal seasonal cuts implemented by Russian oil companies operating in the extreme cold of Siberia and bottled in by winter port restrictions. Moscow's snub to OPEC was obvious. Russia suddenly became one of the new great hopes of Western efforts to diversify U.S. and world oil supplies beyond the Middle East and Persian Gulf. As American energy secretary Spencer Abraham noted during a November 2001 visit to Moscow, Russia seemed to be emerging as a separate nucleus of the energy equation. (2) In the Washington Post in December 2001, David Ignatius asserted that Moscow is on its way to becoming the next Houston--the global capital of energy. (3) By January 2002, Russia's President Putin had been hailed by a Canadian newspaper as the world's new oil Czar, (4) and the Russian media was replete with commentary on Russia's role as the new power broker in international energy markets. In an extended article in the March/April 2002 issue of the preeminent American journal Foreign Affairs, two energy analysts went so far as to suggest that Russia--together with the energy-rich states of the former Soviet Union clustered around the Caspian Basin (Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan)--was poised to challenge Saudi Arabia for global energy dominance. Russia, they argued, could soon displace Saudi Arabia and OPEC in oil markets in the United States, Europe, and Asia. (5) The authors, along with media commentators, saw increases in Russian oil production and new reserve finds in the Caspian Basin as evidence of substantial future export capacity. In addition, they depicted the Russian energy industry as an independent actor, emancipated from state control (unlike the state-held oil companies of OPEC members), which was eager to help the United States and the West break free from OPEC dependency by becoming a reliable, long-term energy partner. Certainly, the Soviet Union was a major international energy player in the 1980s, and Russia has assumed much of that mantle since its dissolution, but in 2002 Russia's grip on the attention of the media and international energy analysts is due more to a confluence of events and circumstance than a serious assessment of the country's energy capabilities. In most discussions of Russian energy, the extent of Russian oil production capacity is not questioned. Differences between Russian gas and oil assets are not distinguished. Little distinction is made between Russian energy and that of other Caspian Basin states, and the relationship between the Russian energy industry and the state is not questioned. …

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