December 27, 2005

Kremlin Reasserts Control of Oil, Gas

"Peak Oil" is a controversial concept reflecting concern for the availability of ample supplies of fossil fuels as reserves run low, prices rise, exploration becomes more "intrusive" and politically sensitive, and more expensive extraction techniques are required.

Regardless of whether one believes in "peak oil" or not, it is certainly true that industrial and governmental control of fossil fuels reserves is power. Increasing demand will increase dependence globally and the disparity between the haves and have-not nations will increase. For instance, while information about the presence of WMD in Iraq was wrong, it is indisputable that Saddam Hussein was at a power vortex - controller of vast oil reserves in the midst of other producers, unpredictable as a military commander, in pursuit of military technology to not only subjugate his subjects but to threaten his neighbors, willing to leverage his resources to extend power.

Other such vortices will continue to gather in strength in direct proportion to their owners willingness to exploit them compounded by the dependence of high-consumer nations to need them. Development of alternative renewable energy sources will reduce the power of these vortices.

Here is an update from the Christian Science Monitor about Russia, a mounting power player who, historically, has been willing to press their advantage. As reported in this article, Russia is nationalizing its industry and using oil alternately as a foreign policy "carrot" and "stick." Here are some excerpts...


Kremlin Reasserts Control of Oil, Gas

Russia, the world's second-largest oil producer, sees energy as a key foreign policy tool
By Fred Weir | Correspondent of The Christian Science Monitor

MOSCOW – Call it PetroKremlin. A vast state-run energy conglomerate has been assembled over the past year, some experts say, to fuel Russia's bid to revive Soviet-style great power status.

To date, the Kremlin has effectively renationalized almost a third of the formerly private oil-and-gas sector. Other developments also point to growing state ambitions...

While there may be confusion over the long-term domestic impact of Putin's policies, there seems little doubt that direct control over Russia's vast petroleum resources offers the Kremlin substantial foreign-policy clout in an increasingly energy-starved world.

At a meeting of the Association of Southeast Asian Nations in mid-December, Putin pledged to ramp up oil deliveries to Asia, from the present 3 percent of Russia's total exports to 30 per cent by 2020. In a joint statement, leaders of the 10-nation group pledged to build a "comprehensive partnership" and boost trade and security cooperation with Russia. A new Siberian pipeline should start pumping crude in 2008, with early deliveries going mainly to China.

"Russia has been seeking a more active role in the Asia-Pacific region, and it's been recognized that only oil that can facilitate this," says Yury Sinyak, head of energy studies at the official Institute of National Economic Forecasting in Moscow. "It's an open question whether Russia actually has enough oil to fulfill all the political promises."

If the Kremlin is demonstrating that energy supplies can be dangled like a carrot, it has also realized they can be wielded like a stick. Ukraine, which broke free of Moscow's orbit in last year's "Orange Revolution," was hit last month with more than a quadruple price hike for natural gas supplies - from $50 per 1,000 cubic meters to $230. Kiev has protested that it cannot adjust to such a rapid price hike, but Gazprom has threatened to shut down gas deliveries to Ukraine on New Year's Day if it doesn't comply. Ukraine announced Tuesday an agreement had been reached but a Gazprom spokesman in Moscow denied the claim.

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