A Russian-American Pipe Dream

[sassa]

A Russian-American pipe dream

Volatile Mideast oil supply shifts U.S. focus toward Moscow

After 9/11, Washington and Moscow have joined together to get Russia's vast oil reserves to the U.S. market.

By Preston Mendenhall

MSNBC

MURMANSK, Russia, Nov. 8 — Surveying the Arctic reaches of this shabby port city, Yuri Yevdokimov’s enthusiasm is irrepressible. The regional governor vividly recalls the Nazi advance on Murmansk during World War II when American ships delivered “lend-lease” war materiel to Russia through this frozen gateway. Lend-lease was a pipeline of goods key to Russia’s survival. Today, Washington is looking to forge a relationship with Moscow based on a new pipeline, this time carrying oil. Sixty years after America’s lend- lease program, Yevdokimov says, “Murmansk is ready to return the favor.”

WITH ITS DECAYING naval fleet, crippled fishing industry and frigid polar nights, this isolated northern Russian port has seen its younger generation flee the region in search of opportunity elsewhere for more than a decade now. That may soon change. In the wake of the Sept. 11 attacks, Murmansk could become a key transit point for Russian oil destined for the United States, oil free of the political price tag attached to Middle East petrol.

Last month, President Bush and Russian President Vladimir Putin brought together top oil executives from both countries to meet in the U.S. oil capital, Houston, whose gleaming coastal skyscrapers stand in dramatic contrast to the drab Soviet-era structures dominating Murmansk’s skyline. One oil executive attending the energy summit said the potentates of American and Russian oil politely listened to speeches, then quickly retreated to their hotel suites to negotiate the beginnings of real deals — like the Murmansk deep-sea port.

Some Russian oil companies aren’t even waiting for the pipeline, which would bring down the cost of getting Kremlin crude to the United States. The Tyumen Oil Co., Russia’s fourth-largest, has even proposed that the United States use Russian oil to replenish its strategic oil reserve. Yukos, another Russian oil firm, has started delivering tanker loads of crude to the Texas Gulf Coast. With a Murmansk pipeline not yet in place, the possible mega deals are still in their infancy — but the potential for a fundamental economic realignment is clear.

SHORT-TERM DEAL

The convergence of Russian and American oil interests comes at a crucial time: As Washington seeks international approval for a war with Iraq, Russia has positioned itself as a pivotal ally for the Bush administration’s goals in the Middle East.

The Kremlin fears that if Washington successfully topples the Iraqi dictator, American companies will take over the world’s second-largest oil reserves, and billions of dollars worth of contracts that Russian oil companies have signed with the current Iraqi regime will be annulled. Russia is also seeking Baghdad’s repayment of some $8 billion in leftover Soviet debt.

Analysts say Russia’s decision not to veto Friday’s U.N. Security Council vote on a new resolution to strip Saddam of his weapons was influenced by pure economics. Moscow’s vote for the Iraq resolution, experts say, is likely the result of U.S. assurances to the Kremlin that Russian IOUs will be honored and that future Iraqi oil deals will include the Kremlin as a key player.

The Soviet Union led the world in oil production at 11.4 million barrels of oil per day during the 1980s. Oil field mismanagement in the years following the breakup of the USSR led to a decade of decline, during which production in Russia – the largest of the former republics – scarcely topped 6.1 million barrels per day. But since Russia opened the industry to competition in 1993, oil production has soared, rivaling that of Saudi Arabia.

Russia reorganized its state-owned enterprises as joint-stock companies in 1993. Today, more than 130 companies produce oil in Russia, with 11 companies controlling 90 percent of crude production and 80 percent of refining. The largest companies include Lukoil, Yukos, Surgutneftegaz, Tyumen Oil, Tatneft and Sibneft. Lukoil established a beachhead in the U.S. recently when it purchased the Getty chain of service stations.

Russia's net oil exports (1992-2002)

Russia's net oil exports rebounded from a meager 3.16 million barrels per day in 1994 after the government began selling its shares of the business to hungry investors. When world oil prices declined in September 2001, Russia agreed to OPEC demands to restrict exports. Regardless, Russian oil companies have been aggressive in increasing their crude oil exports as world oil prices have climbed.

Russia's rate of oil production has now exceeded its rate of discovering and harnessing new reserves, so the industry is looking to explore more fields in West Siberia -- the source of most of Russia's oil -- as well as in the Russian sector of the Caspian Sea, the Arctic region, eastern Siberia and the Sakhalin Islands. The challenge beyond building an infrastructure to support exploration in remote and often inhospitable climates will be to build pipelines to transport newly dscovered oil to foreign markets. In the works so far are plans for a new pipeline to Europe -- the Baltic Pipeline System -- as well as pipelines to Korea, China and Japan.

In February 2002, Russia surpassed Saudi Arabia as the largest oil producer for the first time since the fall of the Soviet Union. In the next couple of years Russia's aggressive production could push oil prices below the break-even point for many nations heavily dependent on oil revenue. Such a scenario could be a disaster for the governments of OPEC-member countries. By 2006, Russia may regain its Soviet-era production level of 9 million barrels per day.

LONG-TERM GAIN

Beyond the current Iraq chess game, analysts say, Russia and the United States have much to gain in the long term from an oil alliance.

Washington’s energy security has been tied for decades to Mideast oil dictatorships that have become increasingly unpopular among their own citizens. U.S. standing also has been damaged by what some nations in the region say is Washington’s biased support of Israel in its conflict with the Palestinians.

U.S. vulnerability to perennial Mideast instability could be tempered by a steady Russian oil supply, analysts say, and a Russian-U.S. oil alliance could break the stranglehold of the OPEC oil cartel, led by Saudi Arabia.

Russia’s oil output was cut in half after the fall of the Soviet Union, so becoming a regular supplier to the United States is a lucrative opportunity for Moscow.

Experts conclude such an alliance is inevitable.

“Sept. 11 consolidated and maybe a little bit accelerated the improvement of bilateral relations,” said former Russian Foreign Minister Andrei Kozyrev, who was fired by Putin’s predecessor, Boris Yeltsin, for pushing many of Putin’s policies nearly a decade ago. “In the end, it’s in the best national interest of both sides to cooperate, like in the oil and gas fields.”

GREAT ANTICIPATIONS

With many of Russia’s regions still waiting for foreign investment more than a decade after the collapse of the Soviet Union, the American-Russian oil rush couldn’t come a moment too soon.

In Russia’s Far North, Gov. Yevdokimov has watched 25 percent of Murmansk’s 600,000 residents abandon their dreary lives in a desperate search for work elsewhere. A Russo-American oil pipeline could stem the flow of the region’s best and brightest.

“Quite simply, it will be a new lease on life for Murmansk,” Yevdokimov said.

Sixty-one years after America’s lend-lease act saved Murmansk — and much of the country — from the Nazis, the United States could be coming to the rescue once again.

[tribal]

ive been to Murmansk twice, frozen wasteland pretty much, with some scattered depressing apartment houses. give them 8-10 years of american oil capital, new pipelines and more efficient drilling and pumping technology, russia will become a major exporter of oil to the rest of the world. they have more calculated oil deposits than the entire mid east combined. and you know russia isnt going to use its oil money on suppressing its people, and making deals with islamists, unlike most arab states. russia will become a potential future competitor with china and US for influence in that region

[sassa]

Ah yes...as we all know, Russia has never oppressed the people living within its boundaries, Russian or non-Russian. They have always advocated freedom and democracy, and will continue to do so in the future...

Russia is nothing but a huge mafia territory, where the poor keep getting poorer, and the thugs get richer and richer...

[tribal]

oh please sassa, offcourse theyve oppressed, they are doing so now. so what. everyone is so fucking oppressed these days. why dont you discuss how women are treated in S Arabia, or the rest of the arab world, except maybe for Bahrain, the only nation in that region thats getting their shit together. anyone who is anyone, and who yields power will in some form or another inevitably oppress someone else. id rather give the russians my dollars for petrol than most of the arab states. i know that at least a good part of my money spent will go into a society that produces talented artists, engineers, scientists and other valuable professions at an incredible rate, id rather it would be spent like this, then to buy another tank or SCUD for saddam or some other Opec oligarch. nothing is pure and completely just, i think you know that already.

[sassa]

ok, women in saudi arabia cannot leave their homes without wearing that black shit. women cannot drive there, they are treated like shit, this stems from the culture and mentality of the sauds, not from islam. islam elsewhere in the world is looked upon much differently and people are not as uptight as these saudi assholes...so you cannot make the argument that all muslims are like this.

i am muslim and my family doesn't force me to wear a burqa.

russia sucks...i love the people, the country, the food, and the culture..but the politics and the organized crime make it such a shitty place to be...it's a gangster's paradise.

there is a man who heads the red mafia....he is supposed to own all of hungary's armament industry....do you think this is normal?

[tribal]

no offcourse not, they have an array of problems, real and disturbing problems. thats why it pisses me off when idiots like normal noise, continually despise and bash this country. theres a wide scope of difference between constructive criticism and hatred. he doesnt criticize, he hates. regarding the pipeline, the russian organized crime is so rampant because of a sudden jolt of capitalism into a stagnant and centrally planned communist economy, a system that never worked. offcourse youre gonna have these ultra powerful 'entrepreneurs' weilding power and money. russia is on its way to becoming a much more stable and progressive country despite all the negatives. they are almost in the WTO membership, and putin is determined to regulate and tax his far flung regions. russia is slowly restoring order to its infant capitalist society. this is much more than i can say for the arab states, whose unbelievable oil revenues hasnt done them shit for 50 years. that us-russia oil pipeline will repalce mid east as the primary source of energy within 10 years. watch it happen. US oil companies would much rather invest in russian oil than mid east oil, due to rising global tensions and wide spread arab anti americanism

[sassa]

Originally posted by tribal

no offcourse not, they have an array of problems, real and disturbing problems. thats why it pisses me off when idiots like normal noise, continually despise and bash this country. theres a wide scope of difference between constructive criticism and hatred. he doesnt criticize, he hates. regarding the pipeline, the russian organized crime is so rampant because of a sudden jolt of capitalism into a stagnant and centrally planned communist economy, a system that never worked. offcourse youre gonna have these ultra powerful 'entrepreneurs' weilding power and money. russia is on its way to becoming a much more stable and progressive country despite all the negatives. they are almost in the WTO membership, and putin is determined to regulate and tax his far flung regions. russia is slowly restoring order to its infant capitalist society. this is much more than i can say for the arab states, whose unbelievable oil revenues hasnt done them shit for 50 years. that us-russia oil pipeline will repalce mid east as the primary source of energy within 10 years. watch it happen. US oil companies would much rather invest in russian oil than mid east oil, due to rising global tensions and wide spread arab anti americanism

but how do you know that what happened in the middle east (the house of saud hording billions of dollars for themselves) won't happen in russia? it's very likely...