U.S. could increase oil dependency on Russia

  • 2002-05-29
  • Marielle Eudes

Russia and the United States launched a "new energy dialogue" on May 24 that could reduce U.S. dependency on Middle East oil supplies and provide a major boost to the Russian economy.

"World economic growth depends on the stability and reliability of energy supplies," said U.S. President George W. Bush and his Russian counterpart Vladimir Putin in a joint statement.

Russia is "one of the biggest world energy suppliers, and in order to increase international energy security and [market] stability, we have agreed to launch a bilateral energy dialogue," they said.

Enhanced Russia-U.S. cooperation in the energy sector would reduce U.S. dependency on the volatile Middle East and the major Organization of Petroleum Exporting Countries (OPEC) suppliers, and have a stabilizing effect on world prices.

In return, Russia, already the world's second largest supplier of crude after Saudi Arabia, would regain some of the market share it lost with the collapse of the Soviet Union and receive a major boost to its economy.

The statement envisages increased U.S. investment in oil and gas prospecting and extraction in Western Siberia and in Russia's Far East and Pacific coast regions, along with the modernization of Russia's refining and transportation structures.

An early indication of the trend came with the signing of a memorandum on cooperation - timed to coincide with the Russia-U.S. summit - between the U.S. company ChevronTexaco Shipping and the leading Russian shipping company Sovkomflot, including a long-term contract for the transportation of Caspian crude.

On May 23, ExxonMobil signed a $140 million contract with the Amur shipbuilding company to modernize the oil platform off Sakhalin, on Russia's Pacific coast.

However, observers said the "energy dialogue" was unlikely to give rise to an immediate surge of Russian oil on the U.S. market.

Russian oil exports to the United States currently account for just 0.2 percent of the market, compared with 20 percent for Saudi Arabia and 14 percent for Venezuela.

Considerable time will be necessary to develop supply routes and modernize Russian ports.

The construction of new pipelines would lead to a sharp rise in U.S. investment in the Russian oil industry and enable it to regain the levels it achieved during the Soviet era.

U.S. investment in the Russian energy sector has been modest, hamstrung in part by restrictions arising from the Trade Department's refusal so far to grant Russia recognition as a market economy and by the Jackson-Vanik amendment that also denies it favorable trade terms.

Movement to ease these restrictions was apparent at the Moscow summit where Bush said he would urge the U.S. Congress to remove Russia from the Jackson-Vanik amendment, an item of Cold War legislation designed to punish the Soviet Union for limiting the emigration of Soviet Jews.

The U.S. Trade Department is due to take a decision on granting Russia market economy status by June 14, according to Russian Economic Development Minister German Gref, as quoted by the Interfax news agency.

And although nothing is guaranteed, analysts said a rapid increase in Russia-U.S. cooperation in the energy sector, in particular petroleum, would be of immense benefit to both sides.

"Russia produces excess oil and the United States needs it. Longer-term understanding over oil delivery would be an elegant way of undermining OPEC, limiting oil price stability and providing stability to the Russian budget," said Roland Nash of the Renaissance Capital investment group.

Valery Nesterov of the Troika Dialog group described the Bush-Putin statement as "a good start in the right direction, but for the moment mainly political, perhaps enabling Russia to become a major exporter to the United States in five to 10 years."

It is also a means of putting "psychological pressure on Middle East suppliers," he noted.