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Russia: OPEC's Production Cut Brightens Outlook For Economy

OPEC's latest production cut has brightened the outlook for Russia's economy, but it may do little to curb the country's dependence on petroleum for its exports. By one measure, Russia's reliance on fuels is rising, leaving it vulnerable if oil prices decline. RFE/RL correspondent Michael Lelyveld reports.

Boston, 31 July 2001 (RFE/RL) -- Russia has hailed an OPEC decision to reduce oil output by 1 million barrels per day, but has departed from its past practice of promising to contribute a cut of its own.

Last week, the Russian Foreign Ministry issued a statement praising OPEC's latest decision to support oil prices by lowering production as of 1 September.

The ministry said, "Russia, being a major oil exporter, also comes out for a stable oil market and for establishing a constructive dialogue for this purpose between the producing and consuming countries." It did not say that Russia would limit its own production to support OPEC.

One likely reason is that Russia has never delivered on any of its previous pledges since 1999 to curb production in line with OPEC. Last year, Russia increased oil output by 5.9 percent to take advantage of rising prices that resulted from OPEC cuts, despite its promises to the oil cartel.

Russia's most recent assurance came in March when former Deputy Energy Minister Alexei Miller told an OPEC meeting in Vienna that Russia would reduce its exports, the "Asia Times" reported. OPEC also decided at that session to cut its output by 1 million barrels per day.

Instead, Russia boosted production by 6.9 percent in the first half of the year, compared with the period a year earlier. Exports were up 8.8 percent through the end of May, according to the State Statistics Committee. Miller has since been appointed chief executive of Gazprom, the Russian gas monopoly.

Russia has had a habit of cheering from the sidelines while OPEC members struggle to keep prices high. As an observer within OPEC, Russia can only benefit from its decisions without being bound by them.

While OPEC members have reduced their production quotas, they have essentially made room in the world market for Russia to raise its output since last year. Russia's current average production of over 6.5 million barrels per day would make it second only to Saudi Arabia, if it were a member of the cartel.

The latest OPEC decision is especially timely for the Russian government, which has been worried that sagging oil prices would drag down the country's economic growth.

It now appears that officials need not have worried. The government said last month it would be able to sustain a $4.4 billion budget surplus this year if world oil prices were maintained, Agence France Presse reported.

Last week, Deputy Prime Minister Alexei Kudrin said the government can expect at least 80 billion rubles in "additional revenue" because oil prices will stay higher than the $19 per barrel on which the budget is based, RIA-Novosti reported. The country's central bank said last week that it has $36 billion in hard currency and gold, a post-Soviet high.

But ease of mind is not necessarily a sign of progress. Russia remains nearly as reliant on raw materials as it did in Soviet times.

Seven years ago, Russia's oil and gas accounted for about 48 percent of its exports. Petroleum is responsible for about 44 percent of exports now.

According to the Economist Intelligence Unit, the share of all mineral fuels in Russian exports rose from 46 percent in 1998 to over 58 percent last year.

Because of its failure to diversify and develop new products that the world wants, Russia remains dependent on oil and the fortunes of the energy market. That link proved disastrous in 1998, when the Russian economy plunged along with the world price of oil.

In another sense, Russia's economy has become just as dependent on OPEC, a group in which it is not a member and in which it has no voice. Moscow's policy of enjoying OPEC's benefits with none of the burdens may give it a free ride when times are good but no consideration when times are bad, as they were three years ago.

So, while Russia's government is relieved over the latest break for the economy, it may have little reason to celebrate its reliance on oil.