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Russia's Oil Biz Set to Boom
By MARTIN SIEFF, Senior News Analyst
WASHINGTON, Oct. 23 (UPI) -- The collapse of Russia's oil industry heralded the economic collapse of the entire Soviet Union. The dramatic revival of Russia's oil industry in the last few years serves notice that Moscow is still one of the three greatest global powers, and that its much-derided economic recovery is likely to be real and lasting.
Even before the disastrous events of Sept. 11, the recovery of Russia's oil industry had confounded the gloom-and-doom prognosticators in Washington who were convinced that the world's largest nation was doomed to continued economic decline, demographic implosion and eventual disintegration.
Now, with political and religious turmoil threatening to sweep the Middle East, the prospects for Russia's fast recovering oil industry look better than ever.
Shrewd, soft-spoken Russian President Vladimir Putin has no background in oil, but he listens closely to someone who has. That is former Russian spy chief, foreign minister and prime minister Yevgeny Primakov, a Slavic George Smiley who was already Russia's most influential energy and Middle East political analyst almost four decades ago, through the 1960s.
Quietly, relentlessly and, when necessary, ruthlessly, Putin has squeezed U.S. oil companies out of the Caspian Sea basin. While the American media dozed and only a few industry analysts paid attention, he and his diplomats practiced highly effective delaying and construction tactics to ensure that the key oil pipelines out of the Caucasus would be ones that ran through Russian territory. The long proposed Baku-Ceyhan pipeline that Turkey wants to build with fellow Turkic Muslim Azerbaijan remains a long way from completion and operation. And if the Russians have their way that may never happen.
Although overall foreign investment in Russia since the collapse of communism is only around one percent of the amount of investment that China has attracted in the same time, the Russians have succeeded in the past three years in attracting at last important investments to refurbish their oil industry.
This is of immense strategic importance. Oil remains Russia's most important hard currency earner, just as it was for the Soviet Union previously. The relative recovery of the Russian domestic economy since 1998 was in part due to the sweeping currency devaluation and painful fiscal reforms finally carried out in the fall of that year. But it also owed a great deal to the 350 percent rise in global oil prices in 1999-2000, following the unexpectedly successful output reduction agreement between Saudi Arabia and Iran.
Since then, global oil prices have fallen again, as the U.S. domestic economy skidded toward a stop and Japan remained mired in its decade-long recession. Yet Russia's economy recovery did not falter too, despite many prophecies by Washington experts that it would do so.
Russian domestic industries such as food processing continue to benefit from the collapse of Western luxury imports since the 1998 devaluation. And even weather and the moribund agricultural sector have relented on the suffering Russian people. This year's harvest was one of the greatest in recorded history.
But oil remains the great hard currency-earning export locomotive with the best prospects for pulling the Russian economy out of recession. Russia is the second largest single oil producer in the world after Saudi Arabia. It out-produces Kuwait, Iran and Iraq. And its long term production and export prospects are much brighter than either Kuwait's or Iran's.
Tiny Kuwait remains vulnerable to potential threats from either Iraq or Iran, and to waves of extreme, anti-Western Islamic passion, just like Saudi Arabia next door.
Iran's oil industry has been one of the most important in the world for the past 90 years. But now many of its most important oil fields are in advanced stages of depletion. Therefore Iran is desperate to develop its own natural gas reserves because it needs to pump much of that gas into its aging oil fields in order to re-pressurize them and keep getting the oil out.
By contrast, Russia is finally recovering after 25 years from the colossal mismanagement of its own oil reserves under Soviet President Leonid Brezhnev. Modern oil surveying and extraction technology is finally being used to explore and access new oil fields, and to extract wealth from old ones whose development was bungled disastrously by communist engineers in the 1960s and 70s.
Now, the increasing tensions between the United States and the Muslim world put Russia in a win-win situation in global oil markets.
If the current U.S. efforts to hunt down alleged terrorist mastermind Osama bin Laden and his al Qaeda organization spread, growing anti-American, and general anti-Western passions in the Muslim world will make Russia a far more attractive energy partner for the United States and Western Europe.
Such tensions will also again drive up the global price of oil and give Putin's government another massive fiscal boost. They will also attract a lot more hard currency international investment into the Russian oil industry. For Russia is the largest non-Muslim oil producing nation in the world.
Yet at the same time these developments may take place, Russia looks unlikely to be on the receiving end of major anger from the Muslim world. That is because Iraq and Iran are both strategic allies of Russia.
And for all of Putin's acclaimed rhetoric about joining the United States as a strategic ally in the international war on terror, his government is still going ahead with massive technology and arms sales to Iran. And, according to many reports, Russia also hopes to conclude such deals with Iraq too once U.S.-pushed international economic sanctions on Baghdad are eased.
Also, the defeat of the Soviet Red Army in Afghanistan from 1979 to 1987 at the hands of U.S-backed mujahedin, "warriors of God" guerrillas has left the victorious Islamists there and in neighboring Pakistan free to concentrate their hatreds on the last remaining superpower — the United States. For all its continued problems in Chechnya, and its commitment to defend the government of Tajikistan against Islamist guerrillas there, Russia is not a primary target of extremist Muslim hate the way the United States is.
As a result, even while economic indicators in the United States continue to spiral downwards, Russia, for so long an economic basket case, can now celebrate the snorting of bulls in its booming energy sector.
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