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Tuesday, 4 December, 2001, 18:27 GMT
Russia on Opec collision course
Oil workers at refinery
Russia wants to flex its muscles in the oil market

By Ray Furlong in Moscow

The Russian prime minister, Mikhail Kasyanov, is to meet the heads of the country's powerful oil companies on Wednesday to discuss cutbacks in next year's oil exports which have been demanded by Opec.

The oil-producers' cartel wants to reduce the world-wide supply in order to push up the price of oil, which has plummeted since the 11 September attacks in the United States.

But Moscow's new closer relationship with Washington in the wake of those attacks makes it reluctant to cut back on exports - prompting fears of a conflict with Opec.

It is a sign of how important oil is to Russia that the head of the Orthodox Church, Alexy II, appeared in a recent promo video for the Lukoil company, one of the country's most powerful concerns.

Russian Prime Minister Mikhail Kasyanov
Russia's Prime Minister will meet Opec countries on Wednesday
Pictured in his flowing black robes and white head-cape, he thanked Lukoil for sponsoring the restoration of churches across Russia.

Engine room

Oil is the engine room of the Russian economy, and oil money has driven the first solid growth here since the fall of communism.

Given that it makes up around a quarter of state budget revenues, high oil prices suit Russia.

The long term aim of Russia's oil policy is clearly to take away OPEC's market share, to increase production, and to increase exports

Russian investment banker
There have been last-minute reports that Russia is prepared to provide the kind of export cuts that OPEC demands.

Fall in prices

But many analysts believe Russia has sound reasons for weathering out the current fall in oil prices.

"The long term aim [of Russia's oil policy] is clearly to take away Opec's market share, to increase production, and to increase exports," says Ivan Mazalov of Troika Dialog investment bank.

He says this is connected with the 11 September factor.

The head of the Russian Orthodox Church, Alexi II
The head of the Russian Orthodox Church appeared in an advert
"Russia is using this new situation to integrate itself in a stronger way with the Western economies by getting admission to the World Trade Organisation, and by getting a more visible political role.

"The low oil price is the ticket to that which Russia can afford."

Oil pipeline

This was underlined recently when a new oil pipeline was opened, linking Kazakh oilfields in the Caspian Sea with the Russian Black Sea port of Novorossiysk.

It was jointly financed by the US and Russia.

Visiting Moscow to mark the occasion, the American Energy Secretary Spencer Abraham said, "Russia is emerging as a separate nucleus of the energy equation. We have great respect for the energy role Russia is playing and believe it will have an expanding role in the future."

Private hands

Another factor against substantial cuts is that unlike in many Opec countries, Russia's oil industry is largely in private hands - and has opposed calls for reduced exports.

For instance, the chief executive of the Yukos company, Mikhail Khodorkovsky, has called Opec "greedy" for wanting high oil prices.

His company, which has profited from earlier Opec cuts, has invested heavily and wants to keep production rising - even at the expense of lower prices.

Meeting of OPEC countries
One Russian oil company called OPEC 'greedy'
"At this point we feel that export cuts are inappropriate. We feel that it would be harmful for the Russian oil industry, and reduce the cash to put back into our operations," says Bruce Misamore, chief finance officer with Yukos.

"It could mean shutting down some wells and causing damage to wells which would cost us a lot of money as well. Plus we think the market should just be allowed to work in terms of the price."

If the flow doesn't slow down, Opec has made veiled threats of a price war.

But few in Moscow take that seriously.

"I doubt this will happen. Russia, with its strong fiscal position and good foreign exchange reserves, is better positioned to endure declining oil prices than most Opec countries - including Saudi Arabia," says Ivan Mazalov.

Most analysts believe Russia, the world's second-largest oil exporter, may make token reductions this time.

But by flexing its muscles, it shows the West that it is serious about being an oil ally in the long term.

See also:

20 Nov 01 | Business
Hopes for Russia deal with Opec
15 Nov 01 | Business
Russia defies Opec oil cartel
26 Nov 01 | Media reports
Press questions Russia's oil policy
20 Nov 01 | Business
Oil firm seeks divine help
12 Oct 01 | Business
IMF upbeat on Russia
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