17-08-04

Russia is again emerging as a superpower -- but the reason has less to do with nuclear weapons than with oil. The country has its swagger back as its economy expands for the fourth consecutive year and the world price of oil hovers at more than $ 46 a barrel.

The second-largest oil producer behind Saudi Arabia, Russia has positioned itself as an important alternative supplier to the unstable Middle East.

The Kremlin's protracted battle with its largest producer and exporter of crude oil, Yukos, has raised doubts among some skittish traders about the reliability of Russian supplies and helped drive up prices in unusually tight global oil markets. The Yukos affair began last October when the government arrested Mikhail Khodorkovsky, the company's founder.

People in the industry are split on whether Yukos will survive in its current form, but they are almost unanimous in dismissing concerns about Russia's commitment to remain an oil-exporting superpower. They, and the government, point out that even amid the toing and froing over Yukos, Russia's oil production has not dropped by a single barrel.

Officially, Khodorkovsky was detained on tax and fraud charges, though there has been speculation that the arrest may have been retribution for his support of political parties opposed to President Vladimir Putin. Industry and Energy Minister Viktor Khristenko has taken pains to publicly give the reassurance that the Yukos situation would not disrupt exports.

“Production is growing steadily,” he told the President.

For the first seven months of this year, Russia produced about 2 bn barrels of oil, and the year's total should be 3.3 bn barrels, he said. Last year, Russia produced 3.07 bn barrels.

The Kremlin is unlikely to let Russian exports drop significantly as a result of its fight with Khodorkovsky, industry executives and analysts said. For one thing, Russia can produce more oil than it has the pipelines to export, so any dip in Yukos' production could be made up elsewhere.

Also, high prices are letting Russia reap windfall profits from oil sales. And, the Kremlin is unlikely to risk the international censure that turning off Yukos' taps would generate.

Mr Christopher Weafer, chief strategist at Alfa Bank here, said: “The Kremlin wouldn't jeopardise its position in the global economy by what would be nothing short of an act of global economic terrorism.”

In some ways, the Kremlin itself may have been surprised by the effect of its Yukos prosecution on the oil market.

“Russia has become a decisive force in the world oil market in a way it hasn't been since the beginning of the 1960s, when its exports stimulated the birth of OPEC,” said Mr Daniel Yergin, chairman of Cambridge Energy Research. Over the next decade, production from Russia and the Caspian will increase as much as that in the Middle East, he projected.

“Russia is big-time. A superpower when it comes to oil and gas,” he said.

Source: Straits Times