Connect with us

Russia

The Russia-OPEC-America Nexus: Reimagining the Great Oil Game

Brian Hughes

Published

on

The geopolitical implication to the sudden fall in oil prices has had broad-reaching ramifications for a number of very powerful countries. Two of those countries, Russia and Saudi Arabia, are the most important energy commodity exporters in the world. The other, the US, is the single most crucial oil importer in the world.

The possibility of Russian fatalism awakening is very real as the country faces tightening sanctions, severely underpriced oil exports, and rapid inflation as military spending has increased. Similarly, Saudi Arabia’s diminishing currency reserves and its military adventurism in Yemen have many questioning how the economy can diversify to stabilize the budget. In the US, shale companies have largely been cannibalized to consolidate power across fewer but larger corporations. At a time when the world is increasingly looking at alternative energies to lower pollution and greenhouse gases, oil industries have drastically lowered prices to the detriment of budgets and investors. The question that looms among these oil producers: who will blink first?

The Organization of Petroleum Exporting Countries (OPEC), controlling over 40% of the global crude oil production, curiously refused to cut production while oil prices were plummeting last summer, further exacerbating the price fall. OPEC stated that the decision was not politically based and that prices were simply returning to ‘normal.’ OPEC’s decision to force prices lower in the wake of the worldwide glut confounded oil market pundits. Many looked to shale oil for a formidable explanation. Producing over 5 million barrels a day, the US shale oil revolution has revitalized the local economies of North Dakota and Texas, while little regulation has allowed companies to produce at prodigious rates. This has lowered US oil imports and softened the influence of OPEC producers on US foreign policy.

While OPEC may have wanted to deliver a severe blow to the shale oil companies, who operate with smaller margins than traditional producers, the simple reality is that OPEC was too late to react. Shale oil production increased since the drastic price collapse last year and has only recently shown signs of stagnation. Large shale oil companies have repeatedly bought previously thriving small shale companies for pennies on the dollar as possible bankruptcies have loomed. This consolidation of the shale industry has provided more oil fields for future exploration to companies that have the capital to wait until prices again rise. While the US shale oil industry only accounts for roughly 6% of the global oil market, OPEC’s decreasing reach into the US market may have initiated the production glut. Thus, while the price decrease has recently slowed the shale oil market, consolidations have kept the industry alive.

The most intriguing geopolitical connection with oil prices collapsing is the Western sanction regime on Russia. As inflation hit the Russian economy and protracted recession weighed on Russian morale, OPEC ramped up production. Similarly, Russia has (as of May 2015) produced more oil since the end of the Soviet era. Interestingly, this economic stand-off brought the two biggest oil-producing countries (Saudi Arabia and Russia) to the bargaining table as Russia considers closer ties to OPEC. This tantalizing prospect of a Russian-OPEC alliance has almost always been an illusion since OPEC’s formation and would drastically increase OPEC’s global power in determining oil prices. OPEC has never really trusted Russia and an alliance may only form out of dire necessity. But that is something the United States would staunchly oppose.

As Iran will likely demand greater regional power responsibility as the lifting of sanctions occur in coming months, Saudi Arabia will find its close Western ties strained. Thus, a closer OPEC relationship with Russia would be a geopolitical conundrum for the Western world as the Middle East once again faces possible political destabilization. Witnessing the difficulties of Russian natural gas dependency in recent conflicts in Ukraine, Georgia, and Estonia, an OPEC-Russian alliance would control nearly half of the world’s oil, with Russia becoming the likely leading producer. This could echo the 1973 oil embargo, a time when OPEC controlled 53% of the world’s oil and subsequently handicapped Western economies. With Russia continually looking for ways to damage Western economies and strengthen its own geopolitical position, more Russian energy control would be deplorable to the West.

Contrary to the OPEC-Russian alliance is the simple fact that such cooperation would further strain interrelations with Western powers and would be a difficult political gamble for Saudi Arabia. As Western economies are projected to continually dwarf that of Russia for the foreseeable future, and with an apparent divide between the US and Saudi Arabia regarding Iran, any further strain would leave Saudi Arabia’s Western relations questionable. However, as China becomes the world’s major oil importer, Saudi Arabia has monopolized the Chinese market and increased Chinese sales 37% in the last year, while every other country lost market share. However, Russia is unlikely to agree with any OPEC policy of lowered production while Saudi Arabia continually strives for dominance in the coveted Chinese market.

While market competition has surely decreased oil prices, it remains the most geopolitically significant commodity in the world by all measures. In this environment of little policy clarification and OPEC’s failure to halt shale oil production, Russia has faced the harshest conditions of all oil-producing countries. Although Russia would benefit from an end to shale oil, its economy was already facing difficult projections. Vladimir Putin has had to balance his military adventurism with economic difficulties, exacerbated by the oil glut. In this way, Russia may be aligned with Saudi Arabia in wanting to damage the US shale oil industry (and, at the same time US oil giants, like Exxon), but has more to lose than Saudi Arabia. However, Saudi Arabia and Russia have deftly managed budgets, low debt (a meager 2% and 18% respectively), and strong nationalism. While they would serve each other better as partners in OPEC, the US cannot allow it and Saudi Arabia is, as of now, most unlikely to make that gamble.

All countries involved have much to gain and, similarly, much to lose by way of oil. The US will be the last to consider any kind of radical action in the oil market as low prices serves the White House’s policy for the moment. Russia has little history of giving into foreign pressures and most likely will adapt to lower oil prices. Saudi Arabia, as the leader of OPEC, will most likely act first to balance its budget. While this will leave Russia to increase oil production if OPEC lowers theirs, it may be the only workable political solution. As of now, however, production remains high as all sides stare down each other and decide which direction is the best direction to take. For the first time in a long time, because of so many diverse geopolitical maneuvers happening at one time amongst the world’s energy producers and consumers, the future of ‘status quo’ may indeed be very uncertain.

Brian Hughes is currently a student in the International Security and Intelligence Studies program at Bellevue University in Omaha, NE, USA.

Continue Reading
Comments

Russia

It Is Crucial to Watch Changes among the Russian Elites

Published

on

Georgia’s and to a large extent any other post-Soviet state’s foreign policy depends on what happens in/to Russia.

Problems in the Russian economy might be causing reverberations in Georgia, Moldova, Ukraine, Kazakhstan, etc., but it still is not a long-term problem. What should matter more fundamentally to us are internal developments within the Russian ruling class, changes in the government, struggle among powerful groupings, and relations between the civil and military branches.

In other words, we need to pay closer attention to the Russian elites which govern the country and therefore control the country’s foreign policy. This is important since Russia’s internal situation often has a bearing on foreign policy, and that is where it matters to us.

To be sure, watching developments in a country’s ruling elites is crucial for almost every modern state which is geopolitically active. But with Russia, this is even more important as the political power in the country does not derive from the people as in the European democracies, but rather from powerful security and military agencies which enable the central government in Moscow to control efficiently large swathes of territories, usually of unfriendly geographic conditions.

The way modern Russian elites operate is very similar to the way how Soviet and imperial (Romanov) governments worked. Quite surprisingly, in all the cases Russian elites have been always perceptible of changing economic or geopolitical situation inside or outside the country.

It is often believed that a ruler, again whether during the imperial or Soviet times, wielded ultimate power over the fate of the population and the governing elites. The same notion works for Vladimir Putin. Westerners often portray him as a sole ruler to all the affairs Russian and non-Russian and a major voice in what should be done. True, the incumbent president is powerful, but he gained this authority more as a balancer among several powerful groups of interests such as military, economic, security, cultural and numerous smaller factions inside each of these large groups.

To many, it might seem strange and hardly possible that the Russian president balances rather than rules, but generally a Russian ruler, despite the historically autocratic models of government, always had to pay attention to changing winds among the country’s elites. In the beginning, if all goes badly, the elites might be silent for the fear of oppression, but slowly and steadily they would always try to influence the government. If this did not work, the Russian elites would not hesitate to abandon the ‘sinking ship’.

Indeed, Russian history shows how powerful the Russian elites are and how vital their support for a government is.

Take the example of the Romanov dynasty before World War I. There was a big disenchantment with the way the government operated and once the Tsarist rule failed in the Russo-Japanese war of 1904-1905 and the WWI, the result was immediate: the elites turned their back on the Romanovs and the Empire ceased to exist in 1917.

Perhaps an even better example is how the Soviet Union collapsed in 1991. Though there were military problems, corruption as well as economic woes, it was still in the minds and hearts of the ruling Russian and Ukrainian, Georgian and other governing circles that the idea of a common state failed.

Nowadays, Russia is experiencing serious problems, ranging from economic and educational to purely geopolitical. There are occasional signs that the Russian elites are getting more worried about the future prospects of the country. Where before the Ukrainian crisis there was still hope of final European-Russian rapprochement and the idea that Russians had to model themselves on Europe, now this idea is dead.

Thus, along with social and foreign policy troubles, the Russians are also experiencing a purely spiritual problem. All point to the fact that there are too many issues which have accumulated during Putin’s rule, which, surely, will not be easy to change overnight, but there is a growing understanding that this chosen way is not getting Russia to a spectacularly good place in the world arena.

This brings us to the pivotal question of what Russia will be like after Putin. Is a change to the existing status quo possible? Many developments show that it is a plausible scenario. Considering how many problems have accumulated and considering how troublesome historically it has been for the Russian elites to act openly against the government, it is possible that once Putin is out, internal infighting among elite groups will take place. As a result, reverberations to foreign policy will follow. It is not about wishful thinking on the part of the western community, but rather the result of an analysis of Russian history and the Russian mentality. Almost always, changes at the top of the government, whether peaceful or otherwise, have an impact on the foreign and internal situation.

This is what should be meticulously studied by the Georgians.

Author’s note: first published in Georgia Today

Continue Reading

Russia

Experts Campaign to Enlist Russia’s Commitment to Africa

Kester Kenn Klomegah

Published

on

Roscongress Foundation and Integration Expertise LLC (Intex) have signed an agreement on cooperation between their organizations to work collaboratively on the “Russia-Africa Shared Vision 2030” in preparation for the forthcoming Russia-Africa Summit. The agreement directed towards collecting and collating expert views for the project “Russia-Africa Shared Vision 2030” that could be incorporated into the final Summit Declaration.

A group of Russian experts plan to present a comprehensive document titled “Russia-Africa: Shared Vision 2030” at the forthcoming Russia-Africa Summit scheduled on 23–24 October in Sochi, southern Russian city.

Sochi, located in southern Russia, has an excellent heritage. In both winter and summer, the city hosts world-class global international events, such as the Olympics, the World Festival of Youth and Students, and many others. Sochi has one of the largest congress complexes in the country.

The key issue emerging from many policy experts is a fresh call on Russian Government to seriously review and change some of its policy approach currently implemented in Africa. It’s necessary to actively use combined forms of activities, an opportunity to look at the problems and the perspectives of entire Russian-African partnership and cooperation in different fields from the viewpoints of both Russian and African politicians, business executives, academic researchers, diplomats and social activists.

The Russia-Africa Summit will be the first platform to bring African leaders and business executive directors to interact and discuss economic cooperation of mutual interest with Russian counterparts, nearly 30 years after the collapse of the Soviet Union.

Even as the historical event draws nearer and nearer with preparations underway, Russian officials at the Kremlin and Ministries, particularly Ministries of Foreign Affairs, and Economic Development and Industry, are still lip-tight over what African leaders have to expect from the Summit.

On the other hand, competition is rife on the continent, with many foreign countries interested in Africa. Resultantly, African leaders have been making rational and comparative choices that enormously support their long-term Sustainable Development Goals (SDGs).

Roscongress Foundation along with the Integration Expertise information-analytical company said in a recent news brief that collaborative writing team of Russian and African experts have been working on a document that would outline the main areas for interaction between Russia and African countries.

An expert analysis, including macroeconomic reviews, and an analysis of political systems and inter-country development strategies would be used to reach conclusions about opportunities for cooperation, make recommendations, and define specific goals for the development of Russian-African relations in the period until 2030.

Anton Kobyakov, an Adviser to the Russian President, noted that “Russia has traditionally prioritized developing relations with African countries. Trade and economic relations as well as investment projects with the countries of the African continent offer enormous potential. Major Russian businesses view Africa as a promising place for investment.” 

Andrei Kemarsky, Director of the Department of Africa of the Russian Ministry of Foreign Affairs, said the work on the series of expert reports united by the common theme “Russia-Africa Shared Vision 2030” would make a significant contribution to intensifying Russian-African cooperation and would further promote Russia’s interests on the African continent.

“This project seems to be particularly relevant given the fact that the Russia-Africa Summit is scheduled to be held in Russia with the participation of heads of all African countries,” Kemarsky said.

In December 2017, Russian Export Center became a shareholder of Afreximbank. Russian Export Center is a specialized state development institution, created to provide any assistance, both financial and non-financial, for Russian exporters looking for widening their business abroad.

 “We are seriously looking at multifaceted interaction with Africa. Russia has a long historical connection with the continent since the time African states started gaining their independence. However, that has lost its momentum in early 90s. It is our major goal now to rebuild the trust and the connections with the African countries to make the strong foundation for further business cooperation,” the General Director of the REC, Andrei Slepnev, told me in an emailed interview.

“We’re witnessing a clear growing interest from the both sides to establish the new level of relationships which means it is a perfect timing to boost the economic agenda we have, create a platform to vocalize these ideas and draw a strong roadmap for the future,” stressed Slepnev.

“Given the growing interest in Africa, Russian organizations, both private and public, need a high-quality guide that will help to avoid at least some of the mistakes that have already been made and provide pointers on some of the most promising mechanisms for collaboration,” Roscongress Foundation CEO, Alexander Stuglev, said.

Alexandra Arkhangelskaya, a Senior Lecturer at the Moscow High School of Economics said that Russia and Africa needed each other – “Russia is a vast market not only for African minerals, but for various other goods and products produced by African countries.”

Currently, the signs for Russian-African relations are impressive – declarations of intentions have been made, already many important bilateral agreements signed – now it remains to be seen, first of all, how these intentions and agreements would be implemented in practice with African countries, according to Arkhangelskaya.

During the signing of an agreement between the Integration Expertise and Roscongress Foundation, Yevgeny Korendyasov, a Senior Researcher at the Institute of African Studies of the Russian Academy of Sciences, said that intensifying Russian-African cooperation was now among the list of current priorities of the Russian government and the business community.

“Preparations for the Russia-Africa Summit as a new platform for the Russian-African partnership are in full swing. In this situation, ensuring that relations between countries reach a new level requires a rethinking of approaches, mechanisms, and instruments for cooperation based on their heightened significance in the new conditions of world politics and economics,” according to Yevgeny Korendyasov.

Andrei Maslov, an Expert at the Valdai Discussion Club, noted that Russia’s partnership with the African continent was also a major focus at the Valdai International Club’s  discussion platform, which hosted an expert session titled “Russia’s Return to Africa: Interests, Challenges, and Prospects” held in March 2019.

On March 19, under the Chairmanship of Yury Ushakov, an Aide to the Russian President Vladimir Putin, the Organizing Committee on Russia-Africa held its first meeting in Moscow. The Russia–Africa summit is expected to be attended by roughly 3,000 African businessmen, according to the official meeting report.

As a way to realize the target goals, a preliminary Russia-Africa Business Dialogue as part of the St. Petersburg International Economic Forum (SPIEF) will take place on June 6–8, and will be followed by the annual shareholders meeting of African Export-Import Bank. Russian Export Center became a shareholder in December 2017.

The Roscongress Foundation, established in 2007, is a socially oriented non-financial development institution and a major organizer of international business conventions, together with Russian Export Center are the key institutions responsible for preparation and holding of the all events. President Vladimir Putin put forward the Russia—Africa initiative at the BRICS summit (Russia, Brazil, India, China, and South Africa) in Johannesburg in July 2018.

Continue Reading

Russia

Russia and North Korea: Key areas for cooperation

Published

on

The April 25 meeting in Vladivostok between President Vladimir Putin and Kim Jong-un was their first since the North Korean leader came to power in 2011. Arriving on his armored train, Kim Jong-un said that he had always dreamed of visiting Russia and hoped that his first visit would not be the last.

“We talked about the history of our bilateral relations, about the current situation and the development of relations between our two countries,” Vladimir Putin said wrapping up the opening phase of the negotiations, which lasted for two hours – twice longer than originally planned.

Kim Jong-un said that the two leaders “had a very meaningful and constructive exchange of views tete-a-tete on all pressing issues of mutual interest.”

“I am grateful for the wonderful time I have spent here, and I hope that our negotiations will similarly continue in a useful and constructive way,” he added.    

The talks later continued in an expanded format and ran for three and a half hours.

“We had a detailed discussion of all issues on our agenda: bilateral relations, matters related to sanctions, the United Nations, our relations with the United States and, of course, the central issue of the denuclearization of the Korean Peninsula, focusing on different aspects of all these problems,” Vladimir Putin said during the final press conference.

The main outcome of the talks, however, was the two leaders’ repeated emphasis on the need to restart the six-party talks on the denuclearization of the Korean Peninsula, as well as Russia’s readiness to act as a de-facto mediator between Pyongyang and Washington. Representatives of Russia, North and South Koreas, China, Japan and the United States regularly met between 2003 and 2008 (under Kim Jong-il), but those meetings were eventually suspended by Pyongyang following Washington’s refusal to ease the sanctions regime and its attempts to revise existing accords.

Ahead of the Vladivostok summit, the US Special Envoy for North Korea, Stephen Biegun, made a brief visit to Moscow to discuss the terms of the new Korean settlement parley. The US State Department described the diplomat’s visit as a desire to “discuss respective bilateral engagements with North Korea and efforts to achieve the final, fully verified denuclearization of North Korea.”

However, Mr. Biegun’s visit only underscored the lingering differences in the negotiating sides’ views on resolving the situation on the Korean Peninsula and regarding the mechanisms and mutual steps needed to make this happen. While North Korea, Russia and China are holding out for a phased lifting of sanctions on Pyongyang in exchange for North Korea gradually rolling back its nuclear missile program under international security guarantees, the United States insists on Pyongyang’s prior cessation of its entire nuclear missile development effort. According to Vladimir Putin, Kim Jong-un then asked him to convey his position and expectations to Washington.

“Chairman Kim Jong-un personally asked us to inform the American side about his position and the questions he has about what’s unfolding on the Korean Peninsula,” Vladimir Putin told reporters after the summit.  He promised to do this at upcoming international forums – including in China, as part of the Belt and Road Initiative.

The North Korean leader had thus decided to get back to Pyongyang’s previous practice of “balancing” between the leading world powers in an effort to achieve maximum possible concessions. This balancing act is important for Pyongyang primarily with Washington and Moscow – especially after the failure of the US-North Korean summit held in Hanoi in February.

According to Andrei Kortunov, director of the Russian International Affairs Council, “Kim Jong-un’s trip to Vladivostok means that he is looking for outside support amid his stuttering talks with the United States.”.

“With the failure of the Hanoi summit, Kim Jong-un needs to confirm that he is generally committed to denuclearization, but within the framework of the Russian-Chinese phased plan. Donald Trump and his team reject this and demand a complete denuclearization of the DPRK as a condition for lifting the sanctions,” Go Myung-hyun of Seoul’s ASAN Institute of Policy Studies said.

“What Pyongyang now needs following the failure the Vietnam summit is at least a semblance of minimal diplomatic success,” Andrei Lankov, a professor at Kookmin University in Seoul, said.

The list of countries Kim Jong-un can now turn to for diplomatic support is very short. These are essentially Russia and China. However, his visit to Beijing is not in the best interest of China, which is currently locked in tense trade negotiations with the United States.

Therefore, Kim Jong-un apparently hopes that his talks with Russia will send a signal to Washington that since political pressure on Pyongyang is not working, the Americans should proceed to a phased lifting of sanctions against North Korea in exchange for Pyongyang partially coming across on its nuclear missile program.

“North Korea’s strategy always has been walking a tight-rope between the conflicts of the world powers and getting concessions that way,” the BBC commented.

With the successful Russian-North Korean summit, which reaffirmed the two countries’ shared desire to breathe new vigor into the Korean settlement process, the ball is now in the US court, and President Trump’s well-known predilection for quick fixes and spectacular moves inspires hope for his next, third, meeting with Kim Jong-un.

During his recent visit to Washington, South Korean President Moon Jae-in underscored the need for a new such meeting between Trump and Kim. When meeting with Donald Trump, President Moon stressed that his “important task” is to “maintain the momentum of dialogue” toward North Korea’s denuclearization while expressing “the positive outlook, regarding the third US-North Korea summit, to the international community that this will be held in the near future.” Donald Trump responded in his peremptory manner: “I enjoy the summits, I enjoy being with the chairman,” he said, adding that his previous meetings with the North Korean leader had been “really productive.”

Although there has been no word yet about when exactly this meeting could happen, Kim Jong-un has already made it clear that he is ready “to be patient and wait for the American president by the end of the year.”

Seoul, another target of Pyongyang’s political signals, factors in very importantly in the diplomatic activity currently swirling around North Korea. 

“Kim launched the inter-Korean phase of the “new way” immediately after the meeting in Hanoi. It involves ratcheting up pressure on South Korea to demonstrate greater independence from the US,” The Hill commented.

“Of course, while it is awkward for South Korea to say so openly, there is no gainsaying the fact that the failure to make really meaningful progress in implementing the detailed agreements negotiated during the inter-Korean summits in Panmunjom and Pyongyang is due to the constraints imposed by South Korea’s support for the US’ North Korea policy.”

“South Koreans truly may be the most effective mediators precisely because they are caught between the parties: the Americans with whom they share long-term, common interests; and the North Koreans with whom they share an existential, common national identity,” the publication concluded.

In addition to general political issues and the problem of the denuclearization of the Korean Peninsula, economic projects in energy and infrastructure, including the construction of a gas pipeline and a railway line linking the two countries are an equally important aspect of cooperation between Russia and North Korea.

All these things, however, depend very much on the overall situation on the Korean Peninsula and the prospects for the normalization of inter-Korean relations.

“I spoke about this. We have been talking about this matter for many years. This includes direct railway traffic between South Korea, North Korea and Russia, including our Trans-Siberian Mainline, opportunities for laying pipelines – we can talk about both oil and gas, as well as the possible construction of new power transmission lines. All of this is possible. Moreover, in my opinion, this also meets the interests of the Republic of Korea, I have always had this impression. But, apparently, there is a shortage of sovereignty during the adoption of final decisions, and the Republic of Korea has certain allied obligations to the United States. Therefore, everything stops at a certain moment. As I see it, if these and other similar projects were implemented, this would create essential conditions for increasing trust, which is vitally needed to resolve various problems,” President Vladimir Putin said about this particular aspect of the talks with his North Korean counterpart.

Any further progress in the Korean settlement process depends directly on the kind of relationship we are going to see happening within the framework of the “six” world powers. Anyway, the summit, which has just closed up shop in Vladivostok, gives reasons for optimism. 

 First published in our partner International Affairs

Continue Reading

Latest

Trending

Copyright © 2019 Modern Diplomacy