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New York Times
November 30, 2001
Russian Oil Power

Russia may no longer be a military superpower, but in recent years it has quietly become a behemoth in the oil business, a development with important political and economic implications for the United States and its allies. Moscow is now in a position to sharply limit the ability of the Organization of Petroleum Exporting Countries to manipulate oil prices. By refusing to go along with production cuts that OPEC favors, Russia can enhance its reputation as a responsible and reliable supplier of Europe's energy needs. That is an opportunity President Vladimir Putin should not squander.

The timing could hardly be better. Maintaining current Russian production levels would spare the already sputtering world economy from the added burden of artificially high energy prices. It would also increase confidence in Russia among international oil companies, attracting new investment that could increase output even more in the years to come. A steady flow of oil exports would nicely reinforce Mr. Putin's current efforts to align Moscow more closely with the West.

As the world's largest non-OPEC exporter, Russia has considerable leverage over world oil prices. That influence is further enhanced by the fact that the second- and third-ranking independent exporters, Mexico and Norway, have indicated that they will go along with OPEC's planned production cuts only if Russia does so. Energy Secretary Spencer Abraham is now in Moscow doing his best to encourage high production levels. Although most Russian oil is now privately produced, the Kremlin retains considerable influence over output and export levels.

It was not so long ago that Russia seemed destined to become an oil importer because of Soviet mismanagement of Russia's large reserves. Shoddy engineering and neglect of oilfields under Soviet rule left output declining in the last years of Communism, and it contracted sharply during the economic and political upheavals of the early 1990's.

More recently, as investment laws were reformed and economic conditions stabilized, Russian oil companies started investing again, mostly in better recovery techniques for existing oilfields. As a result, Russian output has risen by about 15 percent over the past two years and now accounts for nearly 10 percent of world production. Moscow is presently the world's second-largest oil exporter, and if its considerable exports of natural gas are added in, overall Russian energy exports are nearly as high as Saudi Arabia's.

Russian oil flows mainly to Europe, and it now supplies a significant share of that oil-hungry Continent's needs. Most of the rest comes from the Middle East. If Moscow acts to shield Europe's economies from the worst consequences of OPEC's projected price increases, Mr. Putin's diplomatic stock in the West will clearly rise.

This month has already seen proposals for closer relations between Russia and NATO and announcements of sharp mutual reductions of American and Russian offensive nuclear weapons. Moscow's cooperation with the West on maintaining oil production would further transform the atmosphere between former cold-war enemies and help encourage the trend toward warmer ties between Russia and the United States.

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