Trading oil for influence

Russia is now the worlds largest producer of oil. Which is certainly nice for Russia, which is turning a tidy profit on the back of oil prices in excess of $40 per barrel.

Russia currently has a 10% market share – it produced just over 9 million barrels per day in April, wheras Saudia Arabia produced only (!) 8.96 million bpd. (The US, in case you are interested, was the third largest producer, with 7.9 million bpd).

The Times wonders, along with many others, if the rise of the Russian oil business will mean the end of OPEC…

Significantly, Russia does not belong to Opec, the cartel that produces a third of the worldÂ’s crude, and its growth in coming decades may undermine the might of Opec power-brokers such as Saudi Arabia and Iran.

It’s a nice idea. But don’t count OPEC out just yet. OPEC’s power doesn’t come so much from the amount of oil it produces, but its ability to increase production when necessary to stop the market overheating. True, most of the OPEC members no longer have the ability to increase production – they are all pumping out as much as they can right now to take advantage of the high oil prices – but Saudi Arabia still has massive spare capacity and will probably retain the capacity to influence the market for many years to come.

The Saudi’s can do this because their oil is in state hands, while in most other countries, including Russia, the industry is privatized, and beholden to shareholders. Profit rules, rather than stability. The Saudi’s value the long term political advantages that their influence over the market gives them as much as they do the hard cash their oil brings in. And in troubled times such as these, that political influence may seem more important than ever to the House of Saud.

Russia, on the other hand, is able to make much less political gain from its oil. Although it uses cheap oil supplies (and the threat of cutting them off) to retain a measure of influence over former members of the Soviet Union, it will be unable to use its oil to make much of a global political impact. The need to satisfy shareholders, combined with the domestic pressures to keep the money flowing into a poor country, mean that Russia isn’t likely to ever have the opportunity to build up any spare capacity.

I’m not sure if that is good for the world, or bad…

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6 Responses

  1. Mike Tyukanov says:

    While Russian oil industry is privatised, oil pipelines are not. So Russian government actually can determine how much of oil can be exported and to which countries.

  2. Andy says:

    Good point. Although I can’t imagine the Russian oil companies themselves being too thrilled at being told where their oil will or won’t be pumped.

  1. June 4, 2004

    Siberian Light points to the

    Siberian Light points to the fact that Russia became the world`s largest oil producer and makes an excellent short overview of situation. If you are interesting in the theme, it is worth to read….

  2. June 6, 2004

    Border issues

    In the Guardian, Elena Lappin writes about being brutally detained by US border guards because she didn’t have a journalist’s visa. In other border-related news, Andy of Siberian Light compares Russian oil politics to that of OPEC. Just recently, Russi…

  3. June 6, 2004

    Border issues

    In the Guardian, Elena Lappin writes about being brutally detained by US border guards because she didn’t have a journalist’s visa. In other border-related news, Andy of Siberian Light compares Russian oil politics to that of OPEC. Just recently, Russi…

  4. February 10, 2005

    Border issues

    In the Guardian, Elena Lappin writes about being brutally detained by US border guards because she didn’t have a journalist’s visa. In other border-related news, Andy of Siberian Light compares Russian oil politics to that of OPEC. Just recently, Russi…