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Russia: Are Oil Exports To U.S. A New Strategic Trade?

Russia's Yukos oil company has announced it will start regular monthly shipments of crude to the U.S. market after making its first delivery only days ago. The move seems to realize not only Russian President Vladimir Putin's plan for an energy partnership, but Yukos chief Mikhail Khodorkovskii's goal of trade with the United States.

Boston, 9 July 2002 (RFE/RL) -- The first shipment of Russian oil to the United States last week seems to have awakened officials and analysts to the possibilities of a new strategic trade.

Just days after its first experimental delivery arrived on 3 July in Houston, Russia's second-biggest oil company Yukos announced that it would make regular monthly shipments from now on, according to Interfax and AP.

The company's president, Nikolai Bychkov, said on 6 July that Yukos would start shipping cargoes of 270,000 metric tons to the United States each month. The planned amount is equal to about 66,000 barrels per day. The monthly deliveries, while still modest, are larger than last week's first shipment of 200,000 tons.

U.S. officials hailed the arrival of the Russian crude as a step toward diversifying supplies and helping to reduce reliance on the Organization of Petroleum Exporting Countries, the cartel known as OPEC. Assistant Energy Secretary Mike Smith said, "I hope this will be the first of many shipments in the future."

Smith may have gotten his wish faster than anyone imagined just a few weeks ago. Judging by reports, Yukos seems to have made its decision to start regular U.S. exports quickly, if not suddenly.

Last week, the London-based "Financial Times" quoted Yukos chief financial officer Bruce Misamore as saying, "While many logistical challenges remain, we believe these pilot shipments will put us on the path to creating an efficient system of providing a stable source of non-OPEC crude oil for the U.S." The statement suggested that an assessment of further shipments would be made in due time.

Mikhail Brudno, first vice president of Yukos, said at a press conference in Houston that the company planned to make five or six shipments to the United States this year. Then, only three days later, Yukos announced it would extend the U.S. trade by commencing regular monthly exports.

The decision comes despite a statement earlier this year by Yukos chief executive Mikhail Khodorkovskii, also cited by the "Financial Times," that the United States was a distant market "where I can only sell profitably from time to time." It seems that either Khodorkovskii changed his mind or his willingness to forgo profits to promote the new trade.

Khodorkovskii apparently weighed the practicality of exporting Siberian oil to U.S. ports on the Gulf of Mexico and decided that it passed the test, despite his doubts. The first shipment last week followed a long and tortuous route. It was first loaded onto tankers at the Black Sea port of Novorossiisk, shipped through the Bosporus to the Aegean Sea, where it was reloaded onto a supertanker for transit across the Mediterranean and the Atlantic. It was then reloaded again onto small tankers for entry into Houston. This extra handling adds to the cost.

It is notable that even U.S. oil companies with major investments in the former Soviet area have not started regular shipments to the United States. In 1998, U.S.-based Chevron Corporation imported 448,000 barrels of oil from its operation at Kazakhstan's Tengiz oil field as an experiment, but concluded that closer European markets made more economic sense.

The Yukos decision to challenge the economics is being portrayed as part of President Vladimir Putin's effort to forge an energy partnership with the United States, fashioning Russia in the role of an OPEC alternative and a stabilizing energy supplier to the West.

But it is hard to say whether Khodorkovskii made his move as part of the Putin initiative, to please the Kremlin, or to develop new markets, despite the logistical problems and costs. The decision has been welcomed politically, which may create rewards of its own. Yukos, which recently disclosed the names of its major shareholders, has been preparing itself for stock offerings on Western markets and trying to surpass Russia's largest oil company, LUKoil.

An earlier Khodorkovskii statement also suggests that his ambition to enter the U.S. market predates the Putin initiative for an energy partnership with the United States.

In June 2001, Khodorkovskii told reporters in Washington that he was unhappy with U.S. President George W. Bush's recently announced energy strategy because it did not include Russia.

Khodorkovskii said he was "disappointed that this policy does not include Russia as a player. Russia is regarded as a country that can only cause problems," AP reported last year. He also said, "It's no secret some people in both countries are looking backward." He added, "We large Russian energy companies are interested in seeing an end to this kind of thinking and looking forward."

At the time, Khodorkovskii said that distance ruled out sales of Russian oil in the U.S. market, but he argued that business could be conducted by exchanges of shipments, known as "swaps."

For whatever reason, Khodorkovskii now seems to have overcome his own objections to direct sales of Russian oil to the United States, perhaps achieving a goal that he has held all along.