Editor’s Note: This paper was published as an article in Demokratizatsiya, Volume 10, Number 4, Fall 2002, and is reprinted here with permission.
In February 2002, Russia briefly overtook Saudi Arabia to become the world’s largest oil producer. With its crude output well in excess of stagnant domestic demand, and ambitious oil industry plans to increase exports, Russia seemed poised to expand into European and other energy markets, potentially displacing Middle East oil suppliers. Russia, however, can not become a long-term replacement for Saudi Arabia or the members of the Organization of Petroleum Exporting Countries (OPEC) in global oil markets. It simply does not have the oil reserves or the production capacity. Russia’s future is in gas rather than oil. It is a world class gas producer, with gas fields stretching from Western to Eastern Siberia and particular dominance in Central Asia. Russia is already the primary gas supplier to Europe, and in the next two decades it will likely capture important gas markets in Northeast Asia and South Asia. Russian energy companies will pursue the penetration of these markets on their own with the strong backing of the State. There will be few major prospects for foreign investment in Russian oil and gas, especially for U.S. and other international companies seeking an equity stake in Russian energy reserves.
[On Russia, Saudi Arabia and oil prices] This is testing out what prices everyone can live with, and it sounds like the Russians can live with prices slightly lower than what the Saudis want to live with. How durable is this Russia-Saudi agreement? They made it under some serious duress after the price drops from 2014-16, and they didn't have much choice. Do their interests align over the long term? We may begin to see the answer as they begin to chat at the G20.
[On oil prices] The question is whether they want to get crosswise with the Saudis or not. It's not friendly cooperation, especially the Saudis and the Russians. This is definitely more a marriage of convenience than love.
Dollar-denominated oil survived three years of rock-bottom prices and diverging economic fortunes between the United States and the producing countries. It is unlikely to change now that the industry is more flush with cash.