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DANCES WITH BEARS
War on Iraq pays
no Russian dividend
By John Helmer
MOSCOW - Russian oil producers, pipelines and
ports are certain to be badly hit if the United States
forces a regime change in Iraq, and if world oil prices
fall sharply. And that's only scratching the surface of
the threat to the Russian economy from an American war
against Saddam Hussein, and all that would follow.
Understanding this should be an antidote
to a spate of recent reports in the
Anglo-American press. These claim that, behind the curtain of
the United Nations Security Council, the Russian
government is negotiating a secret deal with the US to
trade Moscow's concession for war to start, for
Washington's guarantee to secure Russian oil company
concessions in Iraq, or to pay a matching indemnity. No
matter how the value of Russia's interests in Iraq may
be totted up, and never mind how unreliable and
unpredictable Bush administration undertakings are
understood to be, the cost to the Russian economy of a
collapse of the oil price is certain to be greater than
any promised indemnity.
The Russian parliament
has so far failed to analyze and debate this. But
already Russia's oilmen have begun to admit it. Mikhail
Khodorkovsky, chief executive of Yukos, the second
largest of Russia's oil producers, told an investor
conference in New York last Friday that until now
oilfield and refinery output in Russia had been growing
faster than the country's transport infrastructure had
been able to manage. This is why, he said, Yukos was
publicly backing massive investment on new export routes
to China, and the Mediterranean through Croatia and
Murmansk.
Asked what he thinks may happen to
those plans if the US takes military action to topple
Saddam, Khodorkovsky said his view was bearish, but that
Yukos was prepared for a fall of oil prices to $14 per
barrel. He claimed that Yukos could withstand even lower
prices, but added that if there were a sharp decline of
oil prices, spending on Russian oilfield development
would slow, and on transport infrastructure as well.
Khodorkovsky didn't say it, but LUKoil, the biggest of
Russia's oil producers, is much more vulnerable than
Yukos.
A Russian foreign policy maker said this
week in Moscow that he had been told by State Department
officials recently that US policy is to establish and
hold an oil price of $13 per barrel. Everyone in the oil
business understands that if this is true, and if the
policy succeeds, the much publicized monthly shipments
of Russian oil to Houston, which began in July, are
bound to stop abruptly; losses set in at around a price
of $20 per barrel.
If oil this cheap is indeed a
US objective, then a regime change in Iraq, possibly to
be followed by regime change in Iran, and unremitting
pressure on Saudi Arabia, look to be the means that the
Bush administration will pursue, overriding whatever
coziness that has developed between Presidents George W
Bush and Vladimir Putin.
It has been the
achievement of Foreign Minister Igor Ivanov's diplomatic
career to have drawn out of the negotiating process with
Washington these real threats to Russia's strategic
interests in what is unfolding. It bears remembering
that in the decade of Boris Yeltsin's rule, Yevgeny
Primakov came close, both as foreign minister and then
as prime minister, only to be ignored or dismissed at
Washington's insistence.
The immediate reason
that US energy officials have been courting the Russian
oil majors is that the Bush administration wants them to
lobby the Kremlin for support of the attack on Iraq. The
reason the Russian majors want to cozy up to the
Americans is that they would like to list their shares
on the New York Stock Exchange and sell off minority
blocs of stock to US investors, raising the share price
to a multiple of the current level, and adding vastly to
the wealth of the Russians, like Khodorkovsky, who
control the companies. TNK has been negotiating quietly
to sell a billion-dollar stake to Chevron-Texaco and
others. Yukos was planning to list in New York by
December, but has now postponed the move. That relieves
Khodorkovsky of some of the strain he might otherwise be
feeling between his public relations objectives in New
York, and his appreciation of the realities in Moscow.
The Russian oil majors would also like to
attract American funds for investments that are risky,
and take longer than a year to pay back, such as new
pipelines, refineries, oil ports, even tankers and the
icebreakers to assist them. As Khodorkovsky has now
acknowledged, the post-Saddam oil price would destroy
the rate of return for virtually all those projects,
deterring all investment. The multiplier effect for the
Russian steel, pipe, and machine-building industries
would carry the negative impact deep into the heartland
of the economy.
For the time being, it is
necessary to make hay while the sun shines. The major
Russian outlets for oil exports say that they are
expanding as fast as they can. The St Petersburg oil
terminal, for example, the leading outlet for refined
oil products, says that it has expanded its throughput
capacity by 33 percent this year, and is planning to
double this again by 2005. Transneft has begun laying
new pipes for transporting double the volume of crude
oil that Primorsk, the new crude oil outlet in the
Leningrad region, can export. These are costly but
necessary measures for the oil economy to grow in
future. But they won't suffice, nothing will suffice, if
Bush drives Saddam and the oil price into the ground.
(©2002 Asia Times Online Co, Ltd. All rights
reserved. Please contactcontent@atimes.com for
information on our sales and syndication
policies.)
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