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Financial Times (UK)
November 19, 2001
Russian oil chief rejects calls for export cuts
By Andrew Jack in Moscow

The head of Russia's second-largest oil company stressed his opposition to Opec demands for export cuts and called instead for the creation of a long-term partnership to boost production and stabilise prices.

Mikhail Khodorkovsky, chairman of Yukos, the quoted oil group, said in an interview on Sunday that European Union countries along with the US, Norway and possibly Mexico should develop long-term contracts and agree to managed increases in production levels.

His comments came after officials of Opec - the Organisation of Petroleum-Exporting Countries - meeting last week in Vienna threatened a new oil price war, warning that they would not implement planned production cuts unless Russia and other non-members did the same.

Mikhail Kasyanov, Russia's prime minister, dismissed a further drop in oil prices on Friday as the result of short-term volatility. He reiterated his opposition to any significant export cuts by his country other than a reduction of 30,000 barrels a day pledged a week ago and dismissed by Opec as symbolic.

Alexei Kudrin, the finance minister, said in Canada on Saturday that any final decision on further cuts was open to negotiation, but they would not be "profound".

Ernesto Martens, the Mexican oil minister, arrived in Moscow on Sunday for talks with his Russian counterpart, in the latest sign of intensive diplomacy linked to concern about the fall in oil prices since the September 11 terrorist attacks in the US.

Russia has warned that sustained low prices below $18 a barrel risk jeopardising the assumptions made in its 2002 budget, and could trigger government expenditure cuts and difficulties in meeting debt payments. Oil accounts for 25 per cent of annual export revenues and up to 20 per cent of state revenues.

However, Mr Khodorkovsky said that Russia was in a better position economically to sustain low oil prices than Opec countries, and could survive even $12 a barrel for two years if necessary.

He argued that sustaining oil prices above $26 a barrel was unrealistic, and said oil companies could live within a range of $17-$19, and should aim to maintain prices within a broader corridor of $16-$22.

He argued that it was in the interests of the West to help cultivate Russia as a strategic alternative supplier of oil. He said Russia should be allowed to return to peak late Soviet production levels of 9m barrels, compared with 7m currently, and argued that capping production would lead to job losses.

Yukos and two rivals, Sibneft and TNK, are believed to have been angered by plans to impose a "voluntary" production cut of 30,000 barrels a day, arguing that it would discriminate against the three companies that had done most to invest in fresh domestic production.

Other Russian oil companies such as Lukoil have proved more favourable, having invested more in production in Kazakhstan and Azerbaijan. Mr Khodorkovsky argued that these countries would not cut output but would simply make good any cuts made by Russia.

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