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Russia: Moscow Sends Mixed Signals To OPEC

  • Michael Lelyveld

Russia has stunned OPEC and the oil market for the second time this month by resisting calls for a big cut in output to prevent a price plunge. But the issue is only one in which Moscow has been trying to project an image of cooperation in international affairs, rather than just saying no.

Boston, 27 November 2001 (RFE/RL) -- Russia's mixed signals toward OPEC and the world oil market seem to be part of an effort to create an optimistic uncertainty over what Moscow will do next.

Last week, for the second time in November, Prime Minister Mikhail Kasyanov's promise of production cuts helped to lift world oil prices temporarily. But for the second time, officials emerged from a meeting with Russian oil companies with disappointing news for OPEC.

On 23 November, Deputy Prime Minister Viktor Khristenko said Russia would lower its output by 50,000 barrels per day in the fourth quarter of this year. It was only a slight rise from the token reduction of 30,000 barrels per day that Kasyanov had delivered on 12 November.

The minor concessions dashed OPEC hopes for a cut of 500,000 barrels per day by non-OPEC nations, led by Russia. For the second time, Russia's decision quickly reversed the upturn in oil prices, driving them down toward a two-year low.

The 10 participating countries in OPEC have agreed to rein in daily production by up to 1.5 million barrels to prevent a plunge in prices, but only if Russia contributes a major cut of its own. Other non-members like Norway and Mexico have pledged their support, but they are also waiting on Russia, which is now the second-biggest oil exporter in the world.

Russia's unpredictable moves caught several news organizations off guard. On 24 November, the London-based "Financial Times" called the additional cut "paltry" in a front-page story under the headline, "Russia confounds OPEC's arithmetic." On the previous day, the paper had reported that OPEC and Russia were "close to a landmark deal."

Instead, the paper quoted an OPEC official who termed the Russian reduction a "huge disappointment."

The official said: "We need at least 150,000 [barrels per day] of cuts from Russia for all the other agreements to hold. The only alternative is a price war, which will be to the detriment of everyone."

The "Moscow Times" was also led into the trap of expectations, as it reported in a headline on 23 November, "Russia Ready to Cut Oil Output." There were strong reasons for believing that was the case and that a deal may yet come to pass.

Russia is nearly as dependent on oil earnings as OPEC countries. On 23 November, after weeks of delay, the State Duma's budget committee approved a series of spending cutbacks for next year's budget if oil prices continue to slide.

While a final decision is uncertain, it has become clear that Russia is enjoying a new position of power in deciding the outcome of world prices. There are also hints that the oil barons who sit in on the deliberations may be in a position to reap huge profits from insider information on which way the market will swing.

On 23 November, before the government's announcement, the Russian investment bank Troika Dialog wrote in a research note: "For Russia, a diplomatic 'compromise' will probably be reached, but it seems premature to make it now. Let OPEC sweat. Russian cuts, if any, are a question of choosing some random number which one may never comply with. In any case, higher oil prices are putting more glitter in the Russian market."

The government's strategy of saying no only as a last resort seems to be in keeping with its recent stance on other international issues where it plays a critical part. The change has been notable since the 11 September terrorist attacks on the United States.

Instead of opposing NATO expansion as his opening and only position, President Vladimir Putin has been seeking cooperation with the alliance and a role in some decisions. And instead of drawing a hard line against U.S. plans for a missile-defense system, Putin has stressed ways that Russia might show flexibility.

Both approaches have led the West toward an optimistic uncertainty about the outcome of Russia's ultimate policy decisions. But as with OPEC, it is hard to tell whether Putin's diplomacy will lead to changes on core positions regarding NATO or the Anti-Ballistic Missile treaty.

For countries that are waiting to see where Putin's new approach will lead, there may be a fine line between optimistic uncertainty and false hope. But there seems little doubt that Putin has positioned Russia to play a more influential role in international affairs.