Analysts say that world oil prices have been boosted by a "war premium" because of concerns about possible moves against Iraq. The higher prices are helping Russian producers despite an ambiguous deal recently to continue export limits with OPEC.
Boston, 22 March 2002 (RFE/RL) -- Fear of war with Iraq has raised the world price of oil and may have helped Russia to maintain an appearance of cooperation with the Organization of the Petroleum Exporting Countries (OPEC) oil cartel.
Analysts say that concern about possible U.S. action against Iraq has created a "war premium" on oil prices, which briefly touched $25 per barrel on 19 March.
Adam Sieminski, a Deutsche Bank Alex Brown analyst in New York, told the "Financial Times" that the market has valued the war premium at $3 per barrel.
The price rise seems to have relieved pressure on OPEC to do anything. On 15 March, the 10 member nations that have lowered their output quotas for the past year agreed to continue production at current levels at least until June.
On 17 March, Moscow aided OPEC's effort with a statement from Deputy Prime Minister Viktor Khristenko, who said the government would also extend its policy of curbing exports by 150,000 barrels per day into the second quarter of 2002.
The announcement came before a meeting with Russian oil companies and despite a call to reject OPEC demands from Mikhail Khodorkovsky, the chief executive of Yukos, Russia's second-largest oil firm. The company has already made plans to increase its output by 20 percent in 2002.
Just before Khristenko's statement, the Reuters news agency quoted a Yukos official in New York as saying, "We don't think they will [extend cuts]," referring to the Russian government's decision. "While they may not say no to OPEC right to their face, they're just going to let the companies move forward."
On 15 March, Sibneft President Eugene Shvidler also said the companies would try to persuade Prime Minister Mikhail Kasyanov to drop the export limits. Fifth-placed Sibneft plans to raise its production this year by over 29 percent.
But on 20 March, after meeting with the companies, Kasyanov made the formal announcement that the restrictions would continue. Interfax reported that he left the door open to a possible easing, saying, "If we see that the oil market is stabilizing and oil prices trend to grow, the government and oil companies will again look to see if it is feasible to reduce exports later in the second quarter."
In spite of the opposition from Yukos and Sibneft, the decision drew no immediate outcry from either. The reason may be that both companies are doing well under the ambiguous system of export cuts, as Kasyanov is likely to have noted.
Russian officials have been carefully vague about how the reductions are measured, but they apply only to pipeline exports, leaving the oil companies free to increase shipments by ports and rail.
On 21 March, Energy Minister Igor Yusufov implied that Russian oil exports will rise 6.6 percent in 2002, although he left it unclear whether his figures include transit oil from CIS countries. The investment bank Troika Dialogue recently estimated that Russian oil exports will grow by 8 percent.
There is no evidence that current oil prices depend on whether Russia is actually honoring its pledge to reduce exports by 150,000 barrels per day. The amount is supposed to equal 5 percent of the country's exports, but it is less than two-tenths of 1 percent of world oil demand.
By contrast, OPEC reported on 21 March that its own members exceeded their production quotas by 779,000 barrels per day in February, more than five times the amount of Russia's reported cut. Yet, prices have risen to reach OPEC targets for the first time this year.
Encouraging signs from the U.S. economy have helped, but the "fear factor" over Iraq may be the biggest reason why. Despite U.S. assurances that there is no immediate plan for attack, the market has continued to bid up oil prices.
"It is the threat of an attack by the United States against OPEC member Iraq to remove President Saddam Hussein that helped lift crude from a November trough that saw OPEC's crude basket dip briefly to $16," Reuters said recently.
The concern is not only for Iraqi exports, which hit a low of 1.6 million barrels per day a week ago, according to the UN "oil for food" program. Any operation in the region raises worries about the oil flow from the Persian Gulf.
Russian statements on Iraq have also been seen as ambiguous. In London recently, Foreign Minister Igor Ivanov said that Moscow opposes the use of force against Iraq but would not drop out of the antiterror coalition if it occurs.
"Russia is against any attack on a country, be it Iraq or any other country, which bypasses the UN Security Council. This is our basic position of principle." But the statement stopped short of a commitment on how Russia would cast its vote in the Security Council. Last Friday, a Foreign Ministry spokesman denied any ambiguity in the position, calling it "absolutely groundless," Ivanov said.
But this week, the oil industry newsletter "Petroleum Argus" said that Russia and Iraq had put off signing a 10-year cooperation agreement planned since last year: "Talks between the two in Moscow this week appear to have foundered as a result of Russia's equivocal response to U.S. efforts to rally support for military action against Iraq."
While some Russian oil companies may be missing out on promised business in Iraq, all may be benefiting in the short term from the uncertainty. Whether by coincidence or not, ambiguity over OPEC and Iraq seems to be helping Russian oil revenues on two fronts at once.