Also On This Page: Russia enters the oil market
Future prominent oil producing
countries in lieu of Global Intelligence Update. Red Alert June 8, 1998 http://www.stratfor.com Whatever happens to oil prices, however, something extraordinary has happened in the oil equation. For the second time this year, crucial decisions on oil production policy have been taken by three nations meeting privately. Only one of these nations is from the Persian Gulf, which is conventionally regarded as the center of gravity of oil production. No one was present from Central Asia, regarded as the emerging center of gravity. Two of the nations present were from Latin America. This is of tremendous long term significance for the international system. Saudi Arabia, the acknowledged power of petroleum exporters, was forced to turn to Venezuela and Mexico to have any hope of raising oil prices. There is something odd in this. Venezuela exports a little over 5 percent of the world's oil, while Mexico exports less than 4 percent. Saudi Arabia exports 20 percent, while the Persian Gulf taken together controls over one-third of the world export markets. Other non-OPEC countries, like Norway and Russia, each export more than 7 percent of the world's petroleum. Thus, the numbers alone don't explain why Saudi Arabia has become so dependent on Latin American producers for market control. There are several reasons for the Saudis' reliance on Latin America. First, the Persian Gulf states are a fractious lot under the best of circumstances. Following this week's cuts, Kuwait and Iran both made it clear that they would wait before agreeing to cut their own production, even though both had previously called for additional cuts. Morever, even if all the Persian Gulf producers could be lined up on one side of the issue, their market share would not be enough to control world markets without outside support. Thus, the Saudis realize that their ability to deliver the Persian Gulf producers would depend on their ability to generate outside support. Lining up non-Persian Gulf support became critical for holding the Persian Gulf producers together. In the end, the fact was that even with Saudi Arabia speaking for all of them, including Iran, the Persian Gulf states simply don't have the economic power to impose their will any longer. Russia and Norway are the largest non-Arab, non-OPEC exporters. But Russia is not in a position to cut production. Indeed, if the last few weeks are any indication, the Saudis will be lucky if the Russians don't want to increase production. Norway, on the other hand, is an industrialized nation and an integral part of Europe, at least unofficially. As much as Norway benefits from higher oil prices, its industrial sector, and those of its European trading partners, is hurt by them. Norway is hardly going to lead the pack in raising prices. This is the core problem. Oil producers are falling into two groups. Some, like Russia and Indonesia, could not possibly afford to cut production, regardless of the long-term benefits. Others, like Norway and Canada, are on the whole beneficiaries of low oil prices in spite of the fact that they are also exporting oil. The number of nations that have an interest in higher oil prices and can afford to cut production is rather limited. They do not include traditional powers, such as Kuwait, or industrial producers like Norway. They do include Venezuela and Mexico. Venezuela is particularly important because it exports almost all of its production. Thus, production cuts in Venezuela have disproportionate effects on export availability. More important, Venezuela has vast reserves and is therefore critically important to the long term stability of the market. Both Mexico and Venezuela are interested in higher prices and are in positions to curtail production in order to achieve those prices. This has created a dramatically new constellation of oil powers, defined less by their production and export rankings than by their relative freedom to maneuver. As much as both Mexico and Venezuela have been hurt by lower energy prices, they are in substantially better condition than other oil exporters. This is in part the result of the fact that countries like Kuwait and Indonesia have dramatically overreached themselves in their development plans, which has left them incapable of cutting back on consumption without seriously damaging their economies. Mexico and Venezuela have combined solid growth in recent years with much more modest development policies, leaving them with room to maneuver. Therefore, Saudi Arabia, more financially exposed than Mexico or Venezuela, finds itself dependent on their willingness to cooperate in controlling production. We are not persuaded that this consortium will be able to lead the oil producing world back to $20 a barrel oil. But that is not the important point. The increased power of the Latin American producers is part of the general process that has led us to regard Latin America as the growth leader of the next generation. But the increased power of the Latin American producers also points to the decreased power of the Persian Gulf producers. Not only has their economic position deteriorated internally, but their external dependence has shifted as well. The Saudis cannot any longer speak to the Iranians or the Omanis to determine the course of the oil market. They now must speak to the Venezuelans and Mexicans, who may or may not accommodate them. The shift in the center of gravity of energy decision making to the Western Hemisphere obviously shifts the political landscape as well. Mexico and Venezuela are both well in the American sphere of influence. As good as that is for the United States, it means that a new set of issues are emerging for the U.S.. The stability of both Venezuela and Mexico are of critical importance to the United States, not only because they are nearby, but also because they have become central pieces in the global energy equation. This increases the importance of maintaining stability in both countries. Thus, the Colombian mess, always a regional issue, becomes crucial for the United States because of the proximity of Venezuela. If the Persian Gulf is important because its ability to affect the availability and price of oil, then with Mexico and Venezuela in similar key positions, containing the Colombian chaos becomes an issue on the order of the Persian Gulf. It is not surprising, therefore, that the United States is increasing the tempo of its involvement in Colombia at this time. Similarly, instability in Mexico is more than a border issue for the United States. Suddenly, two of the world's largest commodity markets, oil and drugs, are coming together into a single policy dilemma for the United States. With two out of the three major decision makers in the oil field now speaking Spanish, we have entered a new epoch in energy policy. The implications are enormous and, as yet, poorly thought out. |
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Russia enters the oil market with clear aspirations to be the controlling player
ABU DHABI [MENL] -- Arab oil experts are arguing that an embargo will no longer be effective. The experts, attending an energy conference in Abu Dhabi, said Arab League members could no longer be counted on to enforce such an embargo of Israel and the West. They said the Arabs are threatened by emerging oil competitors, particularly Russia, that would make up for the shortfall. Over the last few months, Iran and Iraq have pressed for an oil embargo of Israel and the United States. Iraq ended oil exports under United Nations supervision for one month in a demonstration of solidarity with the Palestinians.
But the experts said Kuwait and Saudi Arabia
have no plans to follow Iraq's example. They said a Gulf Arab oil embargo
would severely weaken those two countries at the time when their dependence
on the West is greater than ever. Middle
East Newsline
editor@menewsline.com
Russia is ratcheting up total oil output
faster than any other major oil producer. In doing so, it might breach relations
with OPEC beyond repair, leading to years of depressed prices. Click below
to read the STRATFOR analysis:
Russia Seeking Oil Dominance: In order to
regain its share of the energy resources market, Russia is seeking to surpass
Saudi Arabia as the world's largest oil producer. Much to OPEC's chagrin,
Moscow is reaching the point where such a goal is well within its
reach.
Russia is playing both sides of the oil game
- reducing exports in name but not in actual barrels - giving it a fresh
set of policy options. Should the need arise, Moscow can either cater to
or strike against OPEC or the West, all the while keeping its own economic
house in order.
The formalization of warmer relations between Russia
and the West this week is unlikely to produce any substantive changes in
the short term. In fact, the most significant development was a seemingly
inconsequential energy dialogue opened with the United States that could
eventually put Russia ahead of Saudi Arabia in oil production and exports.
The historical animosity between Israel and Russia
softened after the Cold War, due in part to Russian immigration to Israel
and Moscow's growing problems with Muslims. Since Sept. 11, that détente
has transformed further into a tacit alliance. A new oil-transfer agreement
now will empower the former adversaries to jointly undermine a common foe:
Saudi Arabia. AFRICA
As the United States and Europe eagerly eye the
oil boom in Africa, the tempo of trade is picking up. Investors will soon
pave the way for expanding economic ties through development of badly needed
transportation infrastructure. Nigeria is eager to capitalize on its considerable natural gas reserves and is pushing for a deal to supply not only Europe but also the United States.
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