Slate's Bizbox
foreigners: Opinions about events beyond our borders.

Russia, Oil, and Conspiracy Theories

By Anne Applebaum
Updated Tuesday, Nov. 27, 2001, at 1:42 PM ET

Down, down, down slide the oil prices. Last year they soared above $30 a barrel. This year, thanks to the international economic slowdown, they've dropped as low as $11. At the moment, they're hovering around $17-$18 a barrel. OPEC is trying to raise prices by cutting production and is browbeating non-OPEC members around the world to go along. Norway has agreed. So has Mexico. So has Oman.

Russia has not agreed however—making it the only major oil exporter not to have pledged a significant decrease in production. To date, Russia has offered a cut of 50,000 barrels, well below the half-million barrel-cut that OPEC wants. Without Russia's cooperation, OPEC won't go ahead with its own. Without Russia's cooperation, oil prices will stay low. Without Russia's cooperation, in fact, even Russia suffers: Crude-oil exports account for a quarter of Russian government revenues, and every $1 decrease in the price of an oil barrel cuts almost $1 billion in Russian earnings. Why, then, won't Russia cooperate?

Those who prefer the deepest, darkest, most dramatic answers to this question already suspect the existence of a plot: a Russian conspiracy to destroy OPEC in general and to destabilize Saudi Arabia in particular, the better to increase Russian market share. If this is the case, Russia may well win any game of chicken: Russia's 2002 budget is being written on the basis of a price of $18.50, but could survive, with some borrowing, if prices stay above $15 (or, according to some, above $12). The Saudi budget, on the other hand, is in trouble at anything lower than $21. Publicly, there is no love lost between the two countries or between Russia and OPEC. An economic adviser to the Russian president said recently that OPEC is a "historically doomed organization" and that "Russia is in a much more advantageous position." This week, a senior Saudi oil official also expressed diplomatically worded anger at the lack of Russian cooperation, warning of a price drop so severe that it is "difficult to speculate on its extent."

An advanced version of this conspiracy theory has the United States in on the plot to destroy the Saudis. Admittedly, such an intrigue would have a certain historical symmetry to it: There are those who believe that the United States, in league with Saudi Arabia, also tried (successfully) to destroy the Soviet Union in the 1980s by lowering oil prices. And certainly it is true that in the wake of Sept. 11 America's close relationship with the Saudis is under tough scrutiny. OK, they're our allies—but who needs an ally whose citizens fly airplanes into American buildings? Destabilizing the regime is a dangerous game, but how much worse could its replacement be? Osama Bin Laden is Saudi after all—and so is his money.

Of course, even if the game isn't the out-and-out destruction of Saudi Arabia, the existence of tacit U.S.-Russian cooperation can't be ruled out. If it suits the Russians to produce more oil at the moment, it also suits the recession-stricken United States to buy oil at lower prices. In the long term, the United States is quite keen, for political reasons, to reduce its dependency on Middle Eastern oil. Russia is equally keen, for political reasons, to make everyone more dependent on Russia. Those who believe that there is U.S.-Russian collusion to increase oil exports from Russia and other ex-Soviet nations to the West can also point to the Caspian Pipeline Consortium, the first successful Russian-Western-Kazakh pipeline venture, which just happens to kick in this month.

There may be more pipeline possibilities as well. I have no patience whatsoever for those who claim the U.S. government is fighting in Afghanistan because it wants to build a pipeline across the country, largely because there is no evidence that, before Sept. 11, anyone in the U.S. government even remembered Afghanistan's existence. On the other hand, I doubt whether the Russians ever forgot about the idea. Visions of a new pipeline from Turkmenistan to the Indian Ocean may well have been behind their decisions to arm, feed, and provide ammunition to the Northern Alliance—and in Russia's recent, unilateral decision to recognize the Northern Alliance as the "legitimate government" of Afghanistan. If we had not only Russian and Kazakh oil but Turkmen oil as well, would we need OPEC at all?

There is a third possibility, of course, which is that the Russian government has so little influence over its oil producers that it couldn't cut production even if it wanted to. A few weeks ago, a Russian government minister did actually admit that the slump in crude prices meant it was "time to think about [cutting] the budget." He was immediately hushed up by a colleague, who described his comments as "politically unacceptable."

Perhaps—but they may also have been factually accurate. The truth is that whatever the government thinks about it, high production levels, even coupled with lower prices, suit the powerful oil barons very well indeed. Many of them have invested heavily in exploration and new production in recent years and are trying to raise production from the post-Soviet slump. Many are also consciously trying to clean up their public images in preparation for the flotation of their companies on Western stock exchanges. Presumably the companies are worth more—and the owners' shares are worth more—if their production capacity is higher. Given the choice between the welfare of their countrymen and the size of their wallets, Russian oligarchs have never had much trouble making up their minds.

Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
Anne Applebaum is a Washington Post and Slate columnist. Her most recent book is Gulag: A History.
Photograph of oil pumps on the Slate Table of Contents by Bill Ross/Corbis.
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES

Ms. Applebaum's article raises a number of interesting points. Bush's immediate circle does not have the imagination of the writer's conspiracy theorists. There is no evidence that the former are thinking beyond maintaining the present economic relationships with the retrograde Saudi regime, via Houston and its forthcoming campaign contributions.
While the Saudi government budget will be undermined by low oil prices, the country's pre-eminent economic and technical advantages will ensure its leading role in petroleum supply well into the future. The combination of these two factors will provide motivation for future Jeremiahs to seize power and use the Saudi oil supply as a weapon. All the more reason to free ourselves from dependence on these...people.

--Robert J. Molineaux

(To find or answer this post, click here.)


OPEC has always had issues with members lowering production when the price is low. In the past countries like Nigeria, Venezuela, Mexico, and Iraq have all held out or violated production quotas.

The reason is simple; these are poor high population countries where today's needs outweigh future consideration. They would love to have higher prices but are simply unable to sustain the short-term pain of lower revenue and often respond to lower prices not by lowering production but by trying to raise it. Often OPEC papers over/allows it because they are unable to do anything about it and production of these nations does not by itself drive world production (i.e. they can be offset by Arab production reduction).

The problem is the scale of Russian production and their vital need for hard currency. Asking for reduced production when prices are low in the hope of long term gain is courting immediate destabilization. A price the Russians don't want to pay.

Occam's Razor says look for the simple solution first. It does not have to be a conspiracy.

--Michael Murray

(To find or answer this post, click here.)

(11/28)


Washington Post
The Washington Post
OPINIONS
In Palin's Defense
Telnaes Animation | John McCain makes a case for his running mate's foreign policy expertise.
Editorial: Sarah vs. Big Oil