RUSSIA AND OPEC–A MARRIAGE OF CONVENIENCE OR SOMETHING WORSE?

While most American analysts are concentrating on Hurricane Ike and its potentially destructive path through the Gulf of Mexico with its offshore platforms and coastal refineries, other are fascinated by OPEC’s recent 149th meeting in Vienna on September 9 and 10, which was attended by a 20-man Russian delegation, headed by Deputy Premier Igor Sechin. Besides his political position, Sechin is the chairman of Rosneft, a state-controlled oil company and Russia’s largest crude producer, and is one of Russian Prime Minister Vladimir Putin’s longtime associates (Interfax, September 10). Another high profile member of Sechin’s delegation was Sergei Bogdanchikov, Rosneft’s chief executive.

Between them, Russia and OPEC’s leading producer, Saudi Arabia, produce approximately 20 million barrels per day (bpd) of the world’s current consumption of approximately 83 million bpd, or a quarter of global output. Therefore, any such rapprochement is of necessity of the highest interest in Western oil importing capitals. The biggest unanswered question is “why?” While the answer to the question remains obscured in Vienna and Moscow, there are a number of possible motivations behind the Kremlin’s sudden interest in OPEC.

First, even though OPEC is a direct competitor to Russia, the group nonetheless has the biggest single influence on global oil markets, and OPEC has consistently pursued a cautious pricing policy to stabilize prices, imposing quotas on member states when prices drop and lifting them when prices rise. Such a mechanism is invaluable in allowing long-term budgetary planning; and for Russia, insights into mechanisms for stabilizing prices have an increasing appeal over a “go it alone” policy, subjecting Russia’s exports to the whims of the market. This element is bolstered by the fact that Sechin told OPEC members that Russia was drawing up a draft memorandum of understanding on greater cooperation between Russia and OPEC that could include providing a “stable pricing environment” (Pravda, September 10). An official in Sechin’s entourage said that the MOU could take two months to sign and implied that it could be finalized in Moscow in October when OPEC representatives are scheduled to attend an international oil conference there (Kommersant, September 19).

While it is unclear from where the initiative came from, Sechin, who has been a close confidant of Putin’s since the 1980s when they became acquainted in Leningrad, was most likely the prime mover behind the concept. Beginning in 1991 Sechin worked in the St. Petersburg mayoral office and three years later became Chief of Staff for First Deputy Mayor Putin (www.kremlin.ru).

In 1984 Sechin graduated from Leningrad State University as a linguist in Portuguese and French, which led later in the decade to assignments in Angola and Mozambique as an interpreter for Soviet trade delegations and diplomatic missions (Tema Dna, September 14, 2004). Such positions were frequently a cover for the KGB, leading to allegations that Sechin had an intelligence background (Sunday Times, May 15). In an interesting aside to an ongoing Kremlin diplomatic initiative, it is likely that during his time in Africa Sechin became acquainted with Viktor Bout, the gunrunner now languishing in a Thai prison and whom the Russian government is seeking to extradite, as he was on similar assignments for the Soviet military and UN peacekeeping missions in the same two countries during the same period. In Angola Sechin ostensibly worked for Tekhnoeksport, which delivered weaponry (www.lenta.ru, May 14).

Just as Bout’s “maverick” gunrunning operations eventually became an embarrassment for the Kremlin and were subsumed by Rosoboroneksport, concerns about Russia’s potential to use its “energy weapon” against consuming countries not supporting Russia’s policies against Georgia may have provided the impetus to approach OPEC, as an affiliation with the organization would blunt international criticism of Russia’s unilateral “maverick” energy policies.

While quotas would seem intrinsically opposed to Russia’s previous policies of maximizing output at any cost, the fact remains that most of Russia’s easy-to-reach oil has been tapped out, and future developments in the Arctic and other inhospitable and remote regions will require a significant influx of cash, which is unlikely to come from Western investors after viewing the Kremlin’s actions against Yukos, in which Sechin was deeply involved, as Rosneft acquired Yukos assets.

Another impetus for the sudden Russian interest in OPEC might have been the July 14 visit by National Security Council of Saudi Arabia Secretary-General Prince Bandar bin Sultan bin Abdulaziz to Moscow, ostensibly to sign an agreement on Russian-Saudi military-technical collaboration with VTS (Military-Technical Cooperation) head Mikhail Dmitriev, in a ceremony attended by Putin. In a comment largely overlooked at the time, bin Sultan noted, “Both Russia and Saudi Arabia agree upon and understand each other in virtually every energy-related issue” (Interfax, July 14). In a significant shift that left many Americans puzzled, Bin Sultan’s position as a major advocate for closer Saudi-Russia ties represented a major shift from his previous pro-American position developed during his 22 years in Washington as Saudi Arabian ambassador, where he became close enough to the Bush family to be nicknamed “Bandar Bush” (UPI, December 27, 2006).

The Kremlin may well also be interested in studying OPEC’s structures and operations up close, as a possible example for Russia’s proposal to establish a natural gas cartel, an idea that the Kremlin has been promoting for several years. As such a cartel would necessarily include several OPEC members, including Venezuela, Qatar, and Iran, developing a natural gas cartel model on the basis of OPEC’s structures and 48 years of operational experience would allow the cartel, if established, to avoid a number of missteps in establishing itself as a unique entity.

Russia’s attempts to ingratiate itself with OPEC may well have been accelerated by the harsh Western criticism of the Kremlin’s actions against Georgia and the rising volume of speculation that Russia might unleash its “energy weapon” against European states rash enough to criticize its policies. In such an environment, a closer Russian affiliation with OPEC could obviate a certain amount of criticism and mute Russia’s image as a rogue petro-state determined to use its assets to advance its political agenda.

While OPEC representatives will attend an energy conference in Moscow next month, Russia will have a formal opportunity to press its case again for a closer relationship with OPEC at its next ministerial meeting in Algeria on December 17. Doubtless one of the major topics of discussion will be the recent U.S. presidential elections, as both candidates have vowed to wean the United States from its dependency on Middle Eastern oil. For the Kremlin, an added point of interest is John McCain’s rising anti-Russian tenor. In such circumstances, Sechin and his new compatriots will doubtless find a great deal to talk about.