Russia
must say no to Opec
Oil producers need to find a new form of global regulation based on
openness and transparency, says Mikhail Khordorkovsky
The Organisation of Petroleum Exporting Countries failed last week to
persuade Russia to maintain cuts in its crude oil exports in an attempt to prop up the
world oil price. The Russian government will make a formal decision on whether to continue
production cuts this month. It should act with determination and decisiveness and say no
to Opec's demands.
When Opec officials asked Russia to go ahead with the cuts, they did
not use threatening tones as before but asked politely. They even met executives of
private Russian oil companies in Moscow. As a result, Opec and Russia have so far avoided
a dispute. But we shall surely not be able to prevent one for long. It will remain like
this as long as Opec assumes that it can continue to act as producer, exporter and global
regulator all in one.
Yukos is a leading advocate for resisting Opec's recent and current
demands, believing that they benefit neither the consumer nor the global economy. But we
are far from ruling out reaching an understanding. Opec must reconsider its tactics and
seek dialogue, not prescription. To achieve this, Opec must change, as the world is
changing. There can be no free ride for Opec; no conditionality without co-operation.
The events of September 11 have shown us that nations are
interdependent. They are stronger when they work together. In the search for global
security, we must tackle key economic issues such as the supply and pricing of oil. Energy
security must be based on diversification of sources and their long-term reliability. The
time has come for new forms of global co-operation and co-ordination to ensure security of
supply and stable prices. This policy must not be determined only by politicians; it has
to take account of the needs and interests of the private sector as well.
Opec has to accept that its 1970s and 1980s heyday is over. The world
is a different place. There is greater volatility and instability in the Middle East and
the Gulf. The Opec countries can no longer assume the unequivocal support of the US. Their
economies remain overly dependent on oil. The Soviet Union was once the world's largest
oil producer. Since 1998, the Russian oil industry has made a remarkable recovery. Last
year output increased by 7.7 per cent, making Russia the world's second largest producer
after Saudi Arabia.
History has shown that, by its very nature, Opec is incapable of
balancing an inherently unstable oil market on its own. Traditionally, it has focused on
short-term cuts in production. These act against the interests of consuming nations
seeking security of supply and controls on price volatility. At the height of Opec's
power, oil prices were at their most unstable. Its market-rigging tactics have resulted in
volatility, not price stability.
Short-term cuts in production also operate against the interests of
non-Opec producing countries such as Russia and Norway. In Russia, start-up investment and
production costs in the oil industry are high. Opening a new field, given Russia's huge
distances, involves laying and installing pipes and transmission lines. It is impossible
simply to close the pipelines and wait 18 months until the price changes - the dormant
wells would freeze up and be completely destroyed in the bitter cold of the Russian
winter.
Opec must open its eyes to this interdependence of oil markets. In the
longer term, both producing nations and consuming countries need stability of supply and
of prices as fluctuations in oil prices have serious macro-economic effects. If
conditionality is to work, Opec must co-operate to develop procedures for regulating
production in the medium term. Production levels should be established for a period of
between three to five years, helping supplies to become more predictable and giving
consumers and producers greater protection against external shocks.
We all have a common interest in the security of oil supply and the
reduction of price volatility. We should not underestimate the difficulties of the task
but we must not assume it is impossible. We need to emphasise the values of co-operation
rather than competition; consensus over conflict; partnership not dictatorship; and trust
rather than threats.
All sides will have to develop greater openness and transparency. We
must enhance the dialogue between non-Opec producing countries and recognise the important
role of the private sector; improve the quality of discussions and negotiations between
producing and consuming nations; and develop a framework for tri-lateral negotiations
between Opec, the consumer countries and other producers.
We shall not always get exactly what we desire; we must negotiate and
compromise. But surely co-operation is preferable to chaos. Holding the world to ransom is
no longer a defensible policy. For the Russian government, saying no to Opec now could
mean greater scope for a negotiated agreement in future.
The writer is chief executive of Yukos Oil
“Financial Times”, March 11 2002 |
