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Russia in the Oil Game

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  • Ravi Subramanyam
    Dear members, Russia is deep in the game of Oil recently. It has learned the Oil game s sophistication in time like other countries of the OPEC, Europe, North
    Message 1 of 1 , Dec 1, 2001
      Dear members,

      Russia is deep in the game of Oil recently. It has learned the Oil game's sophistication in time like other countries of the OPEC, Europe, North and South
      America countries have been doing for so long. Russia's game plan has a slight twist. It is now cooperating with its long time cold war rival U.S. By
      doing so, Russia is acting as a buffer country between the West and the OPEC countries. Because of Russia's recent no-budge stance on its promise of keeping up the production of Oil that disregards OPEC countries' call for the reduction of oil, Russia in itself is making sure that the world economy do not suffer
      anymore because of OPEC's whim.

      The opportunity is enormous. If the new Russian attitude can be locked in, oil prices can be kept low and the power of OPEC broken permanently. It would be
      a great boon for the West, and for the Third World, including India, China, sub-Saharan Africa, and South America.

      According to the Ira Strauss' article in Moscow Times (Ira Strauss is a Fulbright professor of international relations at Moscow State University and at the Moscow State Institute of International Relations and is U.S. coordinator of the Committee on Eastern Europe and Russia in NATO.), the problem is that Russia has an interest in high oil prices. Each drop of $1 in the price of oil means an annual loss of nearly $1 billion to Russia � but a gain of nearly $10 billion to the West and a $15 billion gain for global economic growth. The West�s gain is huge, but Russia�s loss is also big. This puts pressure on Russia to cooperate with OPEC � strong, daily pressure. It is something that Russians inevitably think of every time they talk about the national budget, debt repayments or domestic spending. There are constant incentives to abandon the pro-Western line.

      So, why Russia is not cooperating with the OPEC then?

      Though OPEC has openly invited Russia to join their cartel, and there are many Russians who would like to join the OPEC, the present Russian Government favors to cooperate with the West rather than teaming with the OPEC. To do so Russia wants the West to the following 3 things:

      1. Bring Russia into the International Energy Association (IEA), and make it an IEA requirement that members cannot join OPEC or coordinate with OPEC against the rest of IEA.

      2. Set up a price-compensation scheme within IEA, so that oil-exporting members have an incentive to support low oil prices. The scheme would be as follows: When oil prices dip below a mutually agreed fair price, say $20 a barrel, the oil-exporting members of IEA (Russia, Norway) would be fully compensated for their losses by all the other IEA members who gain from low oil prices (the United States, Japan and the rest of Europe). This would eliminate the incentive for Russia to keep oil prices high. It would also free Russia to compete ruthlessly against the OPEC.

      3. Have the West greatly increase its imports of and investments in Russian oil and gas, in return for Russia�s granting Western countries control over some
      pipelines through the country and renouncing the right of restricting the flow of oil through those pipelines. This would guarantee Russia a huge market
      and would guarantee the West stable supplies independent of the Islamic world.

      That in turn would be enough to break OPEC�s back, keep oil prices low, and keep deliveries reliable for decades to come.

      If Russia becomes the member of IEA, Russia can play a productive role in the Pro-West world economy rather than being dragged into psychological games being
      played by the OPEC cartles for so many years using Oil supply as their tool. In that scenario, Russia would become an organic part of the Western economy with an undivided interest in Western success, growing with the West and sometimes suffering with the West, rather than on an opposite cycle.

      Professor Strauss thinks that bringing Russia into the IEA and setting up a compensation scheme for low oil prices would serve to undermine OPEC and lock Russia into a full-fledged pro-Western posture on oil production and pricing. It would give the world economy an enormous boost in the form of low oil prices, and would reduce the financial base for international terrorism. And it would guarantee the energy security of the West for decades to come.

      Source: The Moscow Times
      OPEC
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