U.S. still seeking Russian oil despite differences

Despite growing differences over their stance on Iraq, the United States still sees Russia's vast oil supply as an essential means of weaning itself off its dependence on Middle East oil.

During a visit to Moscow last week, U.S. Energy Secretary Spencer Abraham glossed over warnings by U.S. diplomats here that Russia's fierce opposition to U.S. war plans in Iraq could disrupt the economic partnership between the two countries.

"We are pushing Russian and U.S. companies to work together," Abraham said, in remarks that contrasted sharply with recent warnings by the U.S. ambassador to Moscow that Russia could suffer serious economic consequences if it follows through on threats to veto a U.N. resolution authorizing war on Iraq.

In an interview with Izvestia published last week, U.S. ambassador to Moscow Alexander Vershbow said a Russian veto could put at risk planned United States-Russia energy cooperation, including massive U.S. investments Russia's vast oil industry.

Yet he appeared to back off this threat in an interview with the daily Gazeta, saying the United States was interested in dramatically increasing the amount of Russian oil it imports every year, as well as U.S. investment in Russia's oil industry.

Five major Russian oil companies signed an deal in November to build an Arctic export terminal to help them boost shipments to the United States, and Yukos estimated that Russia could supply the United States with 15 percent of its oil supply.

Russia currently provides just 0.2 percent of U.S. oil imports, while Saudi Arabia provides 20 percent and Venezuela provides 14 percent.

"We strongly support the development of greater capacity to export oil in Russia. More pipelines will be a good thing for Russia and will allow more exports," Abraham said.

The energy secretary's statements were echoed by a senior U.S. diplomat, who said on condition of anonymity that "there won't be a strategic course change" in U.S. policy toward Russia even if Moscow vetoes the U.N. resolution on Iraq.

"The leadership of both sides wants to limit the damage because there are too many things that we want to do together," the Moscow-based diplomat said.

Analysts in Moscow agreed that Washington recognized Russia's potential to help the United States lessen its dependence on oil in the unstable Middle East.

"The United States wants to diversify its oil providers and Russia can become a very important supplier, but for now access to the U.S. markets is limited by a lack of terminals," said Pavel Kushnir, an analyst with the Troika Dialog investment bank.

Russian oil companies have been lobbying the government for permission to build their own pipelines, with all pipelines currently run by the state-controlled Transneft working at near full capacity.

Last summer, Russia's second largest company Yukos started sending tankers to the United States.

In May, presidents Vladimir Putin and George W. Bush launched a program to boost oil cooperation, but Russian shipments remain small.

"The Russian government is not very active" in helping along the U.S. cooperation project, Kushnir said, adding that "nearly 99 percent of Russian oil exports are still destined for Western and Eastern Europe."

While the United States remains the top foreign direct investor in Russia, European companies are more embedded in Russia's oil sector.

Just last month, Britain's BP announced the largest ever foreign investment in Russia, launching a joint venture with Alfa Group Access Renova, which owns Russia's TNK oil major, to create the third-largest Russian oil and gas company.

"It is not surprising that it was a European company that carried out the first large acquisition in Russia's oil sector," said analyst Roland Nash of Renaissance Capital.

"The second could very possibly be carried out by another European group just as well as by an American," he said.