#5
The Economist (UK)
December 8-14, 2001
Russia and OPEC
Oilman's bluff
Russia says it will cut production. That may save face, but nothing more
"WE DON'T want to. We probably couldn't even if we did. But to avoid a row we'll pretend." That, in short, is Russia's policy on the export cuts begged for by the price-fixers of OPEC. After a meeting of oil barons on December 5th, the Russian prime minister, Mikhail Kasyanov, said with a reasonably straight face that Russia would cut oil exports by 150,000 barrels per day (bpd) in the next quarter, in the hope that other countries would follow suit, and that the price of oil would stabilise at around $20-25 a barrel.
What Mr Kasyanov did not say was that Russia's harsh winter means that daily production always falls by around that much in the early months of the year (see chart). Assuming that OPEC overlooks this, it stands a better chance of corralling other non-members, such as Norway and Mexico, into making cuts of around 350,000 bpd, and then persuading its own members that it is worth cutting a million or so barrels from their exports. That could push prices up a bit. For its part, Russia avoids an all-out row with OPEC, and postpones the next rumpus until next year.
In fact, Russia has become less keen on propping up OPEC. The Kremlin's current pro-western foreign-policy stance puts it firmly in the consumers' camp. But the shift pre-dates that. A new pipeline to pump Kazakh oil across southern Russia to the Black Sea has just opened. The $4 billion project already showed a change in Kremlin thinking-—earlier, any project competing with Russia's own oil and pipelines was seen as a threat. The government also wants to reverse the production decline of the past decade. Rising oil production (largely thanks to imported western technology and know-how) means that exports are growing strongly and are set to continue doing so in coming years.
Despite OPEC's bluster about a price war, Russia is better placed to survive one than the cartel is. Although Russian oil costs more to lift, its economy is less vulnerable to low prices than, say, Saudi Arabia's (which is burdened by a hugely expensive welfare state).
In any case, Russia would find it hard to enforce a real cut, even if it wanted to. The oil industry is largely privatised. Cheating, even on the Russian government's own rules, is endemic. One top Russian oilman said this week that any spare crude oil would be refined domestically and then exported. It's all in the price.
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