MOSCOW. (RIA Novosti political commentator Peter Lavelle).
This year’s summit of G8 countries has been billed as a bit to “Make Poverty History” in Africa and address global warming.
However, with oil prices hovering at $60 a barrel, the leaders assembled in Gleneagles are more concerned with oil prices, supplies and investment in oil production. Many of the G8 leaders are calling for immediate action to stabilize international petroleum markets and cannot be indifferent to Russia’s stance to make this happen.
A draft text the summit’s final communiqué, to be officially issued Friday makes mention of the condition of international energy markets and the need for investment in oil production. “On investment, we urge oil producing countries and companies and consumers to recognize their common interest in ensuring investment in sufficient future supplies of oil and refining capacity, and call for the removal of barriers to investment throughout the supply chain.”
The reaction to this statement has been swift and full skepticism. Can Russian President Vladimir Putin sign this communiqué in good faith? What raises eyebrows is an apparent paradox: Isn’t Russia shutting the door to foreign investment in its oil patch? Isn’t Russia a risky place for foreign oil to enter in the wake of the Yukos affair? Both statements misinterpret Russia’s approach to development of its own oil sector and Russia international energy policy.
What is true about Russia’s oil sector is that the Kremlin will not allow a foreign concern to own or control a large domestic producer. While much has been written about the reasons for the Yukos affair and the travails of its former head Mikhail Khodorkovsky, few like to remember that the mere possibility that Yukos – even as a privately owned company – could fall into foreign hands was a national security imperative the Kremlin could not ignore.
Some market experts and pundits claim state-control of Russia’s oil patch and the Kremlin’s intent to create “national champions” is backward looking, repeating past failures of other countries that have done the same. However, few who criticize Russia’s domestic energy polices comment on the mounting tensions between China and the United States, over a takeover bid by a state-owned Chinese energy company for one of America's largest oil producers -Unocal.
Oddly, it would appear that economic logic and politics are applied subjectively – a Chinese company should not be allowed to buy an American oil company, but foreign oil concerns should be allowed to buy a controlling stake in a large Russian oil company. It is quite possible a Russian oil giant may one day soon be interested in purchasing a large American up-stream producer, will that bid be greed in the same fashion as by a state-owned Chinese energy company desiring buy Unocal?
What is also true is Russia treats its oil as a “strategic sector.” Strategic means the state has strong interest, including majority control and ownership, in a company or an entire sector. However, this does not mean the exclusion of foreign minority ownership. At present, the U.S. oil giant ExxonMobil has a 30% stake in the far-eastern Sakhalin-1 project, while ConocoPhillips currently owns 10% and expected to increase to 20% of LUKoil, Russia's biggest producer. Gazprom, Russia’s new entry into the oil business, is actively working with Royal Dutch/Shell on number of oil and gas projects. There are many other examples as well.
What most observers of Russia’s energy policy fail to reflect upon this probability that Russia will become a much more reliable energy partner once its energy sector is consolidated. The communiqué that Putin is expected to sign at the end of the Gleneagles summit will include pledges Russia will be able to honor.
Beyond direct foreign investment and ownership in Russia’s oil patch, the Kremlin can and should do more to get oil to the market at a reasonable price and at predictable production levels. Russia also needs to finally decide on new pipelines - a pipeline to transport Western Siberian oil to Murmansk and whether to build a Pacific pipeline to Japan or China. There can be little doubt these pipelines will be state-controlled, but with a new caveat of allowing foreign investors minority stakes.
G8 leaders may or may not make progress on ending poverty in Africa or confronting global warming, but asking – and getting – help from Russia to address current energy concerns is very much on the cards. This is doubly so since Putin has already stated that energy issues will be the priority when Russia chairs the G8 next year. This should be interpreted as Russia doing the world any special favors; it will be investing in its future as well.
THE OPINIONS EXPRESSED IN THIS ARTICLE ARE THOSE OF THE AUTHOR AND MAY NOT NECESSARILY REPRESENT THE OPINIONS OF THE EDITORIAL BOARD.