…REFLECTS CHRONIC DECLINE IN OIL INDUSTRY.

Long-term, the situation facing Russian oil looks even more grim. Output of crude oil fell from 400 million tons in 1992 to 302 million tons in 1997 (6.1 million barrels/day), while output of refined products similarly fell from 255 to 175 million. As production fell, Russian oil producers became increasingly dependent on the cash from exports, which now take one-third of Russia’s output. Oil exports beyond the Soviet Union increased from 66 million tons in 1992 to 107 million tons in 1997. Unfortunately for Moscow, this surge in exports coincided with the general saturation of the world market due to increased output from non-OPEC producers such as Venezuela and Nigeria. (Biznes v Rossii, March 21)

Domestic consumption has also slumped. Russian firms cannot afford to pay the going world price. Like Russian customers, neither can CIS firms pay their oil bills. Most of their deliveries are transacted by barter. Russian oil exports to the CIS plunged from 72 million tons in 1992 to 20 million tons last year.

Russian oil firms would like to sell an even higher proportion of their output to cash-paying customers abroad, but they are constrained by the existing capacity of the export pipelines. One innovation that the new Fuel and Energy Minister Sergei Kirienko introduced last year was a new system allocating export quotas in proportion to the companies’ oil production — a clear improvement on the old system of crony-based allotments. Still, it places oil companies in a dilemma: They are forced to maintain production levels despite potential decreased sales to domestic customers.

Yeltsin Renominates Kirienko.