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#9
Moscow Times
November 29. 2001
U.S.: Russia Crucial To World Economy
By Valeria Korchagina
Staff Writer

Visiting U.S. Energy Secretary Spencer Abraham on Wednesday called Russia a key player in world energy markets that can help boost sagging global economic growth.

Abraham said Russia's economic influence is both increasing and crucial to establishing a fair price for oil based on true market mechanisms — a key component in the global economy.

"I think Russia is emerging as a separate nucleus of the energy equation," Abraham told reporters after meeting with Energy Minister Igor Yusufov. "We treat the Russian role as a very important one. We have great respect for the energy role that Russia is playing and we believe it will have an expanded role in the future," he added.

Russia is currently facing a dilemma over whether to side with oil consumers — the largest being recession-hit America, which consumes about a third of all crude oil traded on world markets — or go along with demands from the Organization of the Petroleum Exporting Countries to cut exports to boost and stabilize volatile prices. Crude prices have fallen by a third since the Sept. 11 attacks in America and OPEC, in response, has said it would cut production by 1.5 million barrels per day in January — but only if major non-cartel producers Russia, Norway, Mexico and Oman cut a combined 500,000 bpd.

While Norway, Mexico and Oman have agreed in principal to cut production by up to 325,000 bpd, Russia's refusal to offer more than a symbolic cut of 50,000 bpd has infuriated OPEC. On Tuesday the cartel struck back, threatening to "flood the market" with oil and drive prices to $10 a barrel — a price that if sustained would cripple Russia's 2002 budget.

The Russian government says it will decide on further cuts at a meeting with major domestic oil companies Dec. 10. But Yusufov indicated that Russia may side with the United States, which wants oil to stay under $20 per barrel, over OPEC, which wants oil closer to $25. Currently benchmark Brent is trading around $18 per barrel, but has fluctuated wildly recently.

Yusufov and Abraham also said that a joint Russian-American working group had been established to increase cooperation in energy sectors.

Some industry watchers said that both sides are already working together to level oil at $20 per barrel. And while Russia continues to stall OPEC, Russian-American relations seem to be blooming, at least on the Russian side.

Abraham appeared satisfied following his meeting with Yusufov, suggesting that Russian authorities are in a cooperative mood on a variety of issues ranging from oil prices to nuclear safety and investment prospects, analysts said. It was unclear, however, whether recent efforts to build closer ties with the United States could produce concrete results.

"There is no under-the-table deal or agreement so far," said Sergei Markov, the editor of the Kremlin-connected web site Strana.ru. "Russia might want some but there are none," he said.

"It is hard to say how long these attempts will last, but the key for Moscow to continue its cooperation with the U.S. lies not in the economic sphere, but in political issues like [the United States'] positions on Chechnya, Ukraine or Georgia," he said.

Russia has frequently been irritated by the West's criticism of its policies in Chechnya and its attempts to influence Ukraine and Georgia, who have indicated readiness for extended ties with the West, including military cooperation.

"If these stands do not change it would show that the U.S. is not sincere and is not ready to accept Russia as an ally and to behave as Russia's ally," Markov said. "When this is clear — [President Vladimir] Putin is just taking time to wait and see — everything will be decided."

On the other hand, Russia's recent openness with the United States makes solid economic sense, said Roland Nash, head of research at Renaissance Capital investment bank.

"In fact, I think Russia has positioned itself quite well. … It just has to manage the current price to be around $20 per barrel and balance the interest of OPEC and non-OPEC countries," Nash said.

"And it would be sensible if Russia moved to be more cooperative with the West," Nash said, adding that Russia's economic interests certainly point that way. "The problem has always been that Russia has never given any particularly strong signals that it is willing to recognize it."

A new friendliness can certainly be felt across the Atlantic, Nash said. "There has been a marked shift in the way in which investors in Washington are looking at Russia."

Dangers lurk on the horizon, however.

Nash said that although there are certain policies that are clearly beneficial to both nations, their overall foreign policy objectives are not the same.

"So there will eventually be a conflict of interest, and the most obvious source of that conflict is Iraq," he said. "And the question would be: 'What would Russia do if America puts substantial pressure on Iraq?'"

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