#4
The Guardian (UK)
November 20, 2001
Kremlin makes Opec sweat: Russia is flexing its
political muscles against the oil cartel. The signs are growing of new-found
confidence in Moscow
BY TERRY MACALISTER AND LARRY ELLIOTT
During the cold war, Moscow's bargaining chips were nuclear missiles and the Red Army. Yesterday, the Kremlin exchanged firepower for fuel as it used its position as one of the world's leading oil producers to challenge the might of the Opec cartel.
In normal circumstances, a meeting between the Russian and Mexican energy ministers would raise barely a flicker of interest on the financial markets. These are not normal circumstances, with the global economy sliding into recession and the diminished demand for energy dragging the oil price below $17 a barrel.
Ever the masters of brinkmanship, Russian oil officials denied that it wanted to establish a rival to Opec but few were fooled when the Moscow media said that the energy minister, Igor Yusufov, had suggested an "informal information exchange association" of those countries who are not members of the 11-nation cartel.
The combination of weak global growth and an aggressive Russia poses the biggest threat to Opec in its history. And Russia does not care who knows it.
The world's number two oil exporter, producing more than 7m barrels a day, Russia has been engaged in a war of words with Saudi Arabia, the biggest producer and Opec lynchpin, since it became clear that on its own the cartel could not hold prices between $22-28 a barrel. Saudi has demanded that Russia cuts its output substantially, but Russia has offered only token help. Kuwait, an Opec ally of Saudi Arabia, has warned that the price could fall below $10 unless the Russians limit production.
Moscow has quiet backing from Washington for its hawkish stance. First, the US's concern about its dependency on the Middle East for oil has grown since the terrorist attacks in September. Second, a lower oil price would cut business costs and hasten economic recovery. As a sign of White House approval, Vladimir Putin was last week given the red carpet treatment in America - including a visit to President George Bush's private ranch - as a reward for Russia's help with the struggle against Osama bin Laden.
The corporate world has benefited too. ExxonMobil recently announced that it would go ahead with a multibillion dollar Sakhalin-1 oilfield development in the east of Russia, amid signs that America wants to embrace the former cold war enemy which has made big strides towards developing a more stable civil society.
Put simply, Russia has started to feel better about itself after the lost decade of the 1990s. The more-than-tripling of the global oil price from a low point of $10 in early 1999 to well over $30 in 2000 may have been bad for the west, but for Russia it meant strong growth, rising household incomes, a current account strongly in the black and the first budget surpluses since communism collapsed. Press freedom might not be Putin's top priority but the days when local industrialists were gunned down regularly on the streets of the capital have gone. The former KGB spymaster has tightened up security and wealth has bubbled outwards - away from a few robber barons - to a growing middle class.
Foreign debt might still be $140bn and the average monthly working wage remains $115, but those at the top are riding high on a wave of optimism triggered by relative political stability and economic success.
"After the near bankruptcy of 1998 and the embarrassing political blunders of Boris Yeltsin, Russia has found a new self-belief and pride under Putin," says Stephen O'Sullivan, head of research at United Financial Group in Moscow. It is no surprise, he feels, that the stock market has soared by 50% so far this year at a time when equities have slumped in the west.
Nowhere has this newfound confidence been demonstrated more graphically than in the punch-up between the Great Bear and the great cartel, Opec.
There are other symbols of Russian corporate confidence, with oil group Yukos bailing out one of the world's most respected oil services groups, Kvaerner, and backers of another oil group, Sibneft, establishing a management arm in London. Yukos is also fighting local rival Lukoil to win control of Hellenic Petroleum in Greece. Both Russian companies have already spread their asset base into former Soviet countries such as Azerbaijan or east European nations such as Romania and Bulgaria.
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