America's Scramble for Russian Oil On, Hoover Fellow Says

Tuesday, October 21, 2003

America's scramble for Russia's oil is on, says Hoover Institution Research Fellow William Ratliff in a just-released Essay in Public Policy, Russia's Oil in America's Future.

After trips to Kazakhstan, the Black Sea, the Baltics and, recently, the major oil fields of western Siberia and Tatarstan, Ratliff concludes that American investments in Russian oil could reach tens of billions of dollars, including technology and expertise.

Ratliff's study examines Russia's massive oil potential and the problems Russians and foreigners may have tapping it, from old, state-run pipelines to the mixing of law and politics.

With big money and invaluable production share at stake, some American companies are likely to play down potential long-term problems to get at the black gold and diversify United States sources. But the presidents of the United States and Russia must think more deeply, Ratliff argues, by placing oil in the context of broader Russian growth and long-term U.S.-Russian relations.

He points to many interrelated matters that will determine the relative success of ongoing talks about Russian oil and its sale:

  • How genuine is Russia's commitment to reform? Russian president Vladimir Putin and others say they want change, and we should support their efforts. But how much does he really want it, how many other Russians agree and to what degree do traditional thinking and institutions impede change? Three hundred years ago Czar Peter turned west, but his successors didn't follow through, with poorer economic and political results seen by comparing development in Russia during the next three centuries to that in Western Europe and America. The KGB-trained bureaucrats who attacked Russia's largest and most streamline oil company, Yukos, in mid-2003, have considerable yet uncertain power and represent an unregenerate past. They cast a dark cloud over Russia's efforts to reform.

  • Hardly noticed abroad, nt Putin recently met in Moscow with Saudi Crown Prince Abdullah, signaling a major shift in international relations. Officials signed several agreements and Russia received a reported Saudi promise of $200 billion development aid and pledges to "maintain stability in the global oil market" through closer cooperation with OPEC. The question is whether Russian concern over American unilateralism, dating in particular from president Clinton's bombing of Yugoslavia in 1999, will in time turn an always-suspicious Russia increasingly away from the United States. Recent attacks on Yukos, the country's most successful and pro-American private oil company, and the Saudi rapprochement, are not encouraging.

  • If the U.S. political and economic relationship with Russia is to prosper, Washington must support serious reform, ranging from developing the rule of law and an infrastructure that can support a modern government that is responsive to the needs of its people. Russia's recent Energy Strategy for 2020, as well as World Bank and IMF reports, warned of serious political, social and economic problems if the economy continues to rely so heavily on energy, especially oil.

  • Finally, Americans still have no serious energy policy, only oil and gas procurement plans. America must actively work to break its excessive dependence on oil, Ratliff asserts. Recent developments should drive development of alternative sources of energy. America must not forever be held hostage by such heavy dependence on so many unstable countries with cultures, institutions and interests that often are very different from our own, he writes.

Complimentary copies are available to working press through Public Affairs.