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Oil and Gas Paradox
Whichever way you look at it, these days all foreign policy actions of the Russian Government should be considered through the prism of oil and gas prices. This connection was evident earlier too. During almost every foreign visit of the previous Russian president Gazprom’s interests were aggressively advanced. Now that Dmitry Medvedev is touring Latin America, energy cooperation outweighs everything else, even arms trade. Today oil and gas are the keywords.
A report of the U.S. National Intelligence Council (NIC) reads that Russia can develop its potential only if oil and gas prices rise above $50-70 per barrel. Judging by Russian officials’ statements, they share the same opinion. At $70 and below, Russia’s national well-being will be maintained at the expense of oil and gas revenues saved up earlier.
In these conditions neither Gazprom nor Rosneft can expect to be treated favorably by the public. The industry is bound to remain Russia’s cash cow, accounting for 65–75% of all export revenues.
The only way out is penetrating foreign markets. Such countries as Libya, where international corporations are still afraid to work, and Venezuela, whence local anti-imperialists have ousted western companies, are especially attractive to Moscow. Russian businesses can make money there without fearing to be challenged.
During the present world crisis the struggle for the remaining niches has escalated. In Russia, where the investment climate in the oil and gas industry is incapable of stimulating cash inflows, the outlook is especially gloomy. The recent amendments to the legislation deny foreigners access to profitable projects. State monopolies’ domination has already resulted in SMBs’ stopping to work. Kickbacks to officials, which, according to oil businessmen, total up to a third of prospecting and development costs, add up to the dismal picture.
Against this background a flight from Russia to any other country (should there be oil and gas assets, which have not been claimed by competitors yet) is seen as a natural decision even by state-controlled corporations. The situation is paradoxical. It is due to state monopolies’ lobbyist efforts that the country’s leading branch has lost attraction. And now the same state monopolies search for sources of income outside Russia, for example in Venezuela.
Mikhail Krutikhin, RusEnergy partner and analyst
All the Article in Russian as of Nov. 26, 2008
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