Editorial - December 2003
Russia - riddles, mysteries and enigmas*
The rapid recovery in Russian oil production from its nadir in 1996, when production fell to 6.1mn b/d, is a well-documented success story. Current Russian production is now at, or close to, 8.5mn b/d. Analysts confidently expect this rapid expansion to continue, with figures of 10-10.5mn b/d pencilled in for 2010 and up to 12mn b/d by 2012.
However, the recent arrest and imprisonment awaiting trial on fraud and tax evasion charges of Mikhail Khodorkovsky - at that time head of the newly formed YukosSibneft - caused a wave of concern to sweep through the oil and financial communities.
Widely ignored, but possibly significant, was the announcement by the Russian Deputy Prime Minister Victor Khristenko that once Russia had reached 9mn b/d in the 2006-2008 period it would then cap production at this level (see p5). This raises many questions - will it really take till 2006-2008 to reach 9mn b/d and, if so, are present flows exaggerated? Does Russia really plan to cap flows and how will it do so given the companies are predominantly privately owned?
Assuming for the moment that Khristenko's words were more than just sabre rattling, do they link in with the recent moves against Khodorkovsky and Yukos?
At the moment there are almost as many explanations as analysts:
- It is purely about applying the law and offers no precedents about future actions.
- Putin is moving against the oligarchs one by one. Having started with the ones with media interests, he is now moving onto the oil oligarchs.
- It isn't Putin at all but the 'Grey Cardinals', his KGB associates now promoted to power in the government and flexing their muscles.
- It is only about Khodorkovsky because he broke the 'deal' under which the oligarchs apparently agreed not to move into politics.
- It's all about the December elections and will be resolved after the ruling party is re-elected.
- It's all about Putin's second term and, once he's re-elected in March, all will be resolved.
- It's all about the traditional anti-semitism of the security forces.
- The prosecutor's office is acting completely independently, with no political pressure.
- It's about Putin's cronies getting rich in the way that Yeltsin's cronies did.
- It's all about stopping ExxonMobil or ChevronTexaco buying shares in YukosSibneft.
- It's all about the state keeping control of the oil industry.
Most of these suggestions are difficult to prove or disprove and there may be elements of several of them. What we do know is that Mikhail Khodorkovsky is currently languishing in gaol, charged with fraud and tax evasion. He has resigned his Chairmanship of YukosSibneft in favour of Simon Kukes, previously Chairman of TNK. Around 40% of YukosSibneft shares have been frozen by the Russian state. Confusingly there is also a story from the Sunday Times that these shares were made over to Jakob Rothschild before they were frozen by the state.
We also know that Putin has publicly committed himself to re-establishing the power of the state and to improving relations with all of states of the near abroad - Kazakhstan, Ukraine, Baltic republics etc.
The Russian state has much in common with Opec in terms of a heavy dependence on oil revenues and oil taxation. Victor Khristenko may even have been hinting they have an interest in conserving resources. In contrast, the Russian oil companies are keen to maximises returns by maximising production. Their interest being in minimal central control and the ability to export freely. Exports are currently constrained by the state's control of the pipeline monopoly Transneft, which is why the companies are keen to build their own export pipelines.
A major shareholding by an ExxonMobil or a ChevronTexaco would make it difficult for the Russian Government to control the oil industry. How the case plays out, and how freely shares in Russian oil companies can be traded will tell us whether the Russian state is consolidating power in the old way or whether the country is moving to a true market economy. Much is riding on the outcome.
Chris Skrebowski
*Winston Churchill - 'I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma
The opinions expressed here are entirely those of the Editor and do not necessarily reflect the view of the EI.
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