and the winner is ............Russia

["Ian Murray" <seamus2001@xxxxxxxxx>]

The International Herald Tribune | www.iht.com

Behold Russia, the Energy Giant and Big Winner
David Ignatius International Herald Tribune
Monday, December 24, 2001



PARIS As the dust begins to settle in Afghanistan, it is increasingly
clear that the big winner in terms of post-Sept. 11 energy politics is
Russia, which now rivals Saudi Arabia as the world's dominant energy
producer.

Since oil and politics tend to flow in the same direction, the rise of
Russia's oil industry will have major strategic impact. It will
transform global business, too, as Russian oil companies such as
Lukoil and Yukos join the likes of Exxon-Mobil and BP among the
"super-majors."

The Afghanistan war will give Russia control over the oil flowing out
of Central Asia, according to energy experts. That is the practical
price that Vladimir Putin can exact for supporting George W. Bush
after Sept. 11. The output from the two big Central Asian producers,
Azerbaijan and Kazakhstan, could total roughly 3 million barrels a day
by 2010.

Russian companies may also be the dominant players in Iraq, regardless
of who is in power there. That would add another 6 million barrels a
day of potential production under Moscow's loose control. Then add
Russia's own production, which totals more than 7 million barrels a
day, and it is obvious that Moscow is on its way to becoming the next
Houston - the global capital of energy. Russia would have a degree of
control over about 16 million barrels a day, roughly double the
current production of Saudi Arabia. And those totals don't include
natural gas, where Russia is already the dominant producer by far.

Russia's emerging dominance of the energy industry is a theme of a
recent study by the Petroleum Finance Co., a Washington consulting
firm. Their analysts note that when you combine Russia's proven oil
and gas reserves, it is already the world's leading energy nation,
with about 15 percent more proven reserves than Saudi Arabia.

"The U.S. need for Russian cooperation means Moscow will gain most in
the new strategic environment," argues a Petroleum Finance analysis of
"winners" and "losers" in the post-Sept. 11 world. Russia's political
hegemony in Central Asia will be strengthened, according to the study,
as will its control over regional pipelines and other export routes.
The big shift will come as Russian oil companies change from sluggish
state-owned giants (and their toxic successors, the privatized
companies whose shares were looted by Russian "oligarchs") into
dynamic modern companies. These Russian companies today are
chronically undervalued because of their robber-baron roots. Yukos,
for example, has reserves roughly equal to those of TotalFinaElf, yet
its market capitalization is less than one-tenth that of the European
company.

"The Russians have realized you can make more money by real capitalism
than by stealing," notes J. Robinson West, chairman of Petroleum
Finance. Already, Lukoil is planning to list its shares on the New
York Stock Exchange - which will force the company to meet tough U.S.
accounting standards. The Russian oil giants are beginning to invest
aggressively outside their home market, in areas where the Russians
have easy political access. Lukoil, for example, is investing heavily
in Iraq's West Qurna field, which is expected to produce nearly
700,000 barrels a day. The company is also exploring for oil in
Algeria, Sudan and Libya. "The Russian companies are going to play a
major role," agrees Walid Khadduri, editor of Middle East Economic
Survey. A big question, he says, is whether Russia will be open to
foreign investment in its own energy reserves. Another energy winner
in the post-Sept. 11 world is Iran, according to both Petroleum
Finance and Mr. Khadduri. Like the Russians, the Iranians were
important allies in America's war in Afghanistan, and they are likely
to be rewarded. "Washington has been forced to recognize Iran's
strategic interests in the Middle East and Central Asia," explains the
Petroleum Finance study, "but Russia's ascendance in Central Asia will
limit Iran's political and economic gains." Iran's problem in
capitalizing on its new status is its political dual personality. It
has a moderate president and a young population so restless that it is
holding pro-American riots after soccer games. But mullahs and secret
police are clinging to power, and they may hold the nation's oil
industry hostage.

Saudi Arabia's immense oil reserves will make it a key player
regardless of what happens with Russia and Iran. Some recent calls by
American politicians to reduce dependence on Saudi oil miss the point.
Americans can buy less Saudi oil if they want, but in a global
marketplace that oil will simply be bought by someone else.

The Washington Post.