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Petrostates in Peril
Russia’s Lukoil Wants to Work with OPEC

Leonid Fedun, the vice president of the Russian state-owned oil company Lukoil said he would welcome production coordination with the oil cartel OPEC this week, if the Kremlin were to approve such a strategy. Reuters reports:

“In my opinion, if such a political decision is taken, Russia should jointly work with OPEC to cut supply to the market… It’s better to sell one barrel of oil at $50 than two barrels at $30,” Fedun told TASS news agency in an interview.

The Telegraph‘s Ambrose Evans-Pritchard hinted that something like this might be in the cards earlier this month, but even as Lukoil and the state-owned oil pipeline company Transneft float the idea that Russia might cut production in the near future, Moscow’s own energy outlook has it keeping production at current levels, which are close to post-Soviet records. The WSJ reports:

The Russian Energy Ministry forecasts that national oil production will remain at current levels through 2035. The International Energy Agency, a Paris-based monitor of energy trends, expects Russian oil output to stop growing this year. By 2020, Russian oil production could fall to 10.5 million barrels a day, the IEA said, and sink to 9 million barrels a day by 2040.

Still, OPEC would love to see Russia cut production, and the cartel’s Secretary-General, Abdalla El-Badri, said just this week that the global glut of crude “should be viewed as something OPEC and non-OPEC tackle together,” adding that “it is crucial that all major producers sit down to come up with a solution to this.” Russia hasn’t cooperated with coordinated production cuts in the past, but at this point, every petrostate on the planet would welcome it were one of their rival producers to reign in production, as low prices stress national budgets and put pressure on regimes.

But Lukoil won’t be the one making those production decisions for Russia—Putin will. And it’s hard to see the Russian President managing to come to some sort of agreement with OPEC when the cartel’s own members can’t trust one another enough to make any cuts of their own.

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  • Jim__L

    If Russia can herd these cats, that diplomatic victory would be REALLY bad news for the West.

    I know VM doesn’t think much of Putin’s chances, but might Russia not be willing to make this happen by cutting deals far beyond the scope of the oil markets? What if, say, the Saudis’ desire to sell lots of oil were ameliorated by Russia making some arms deals with them, to get them the means to fight in Yemen (and elsewhere) without having to sell so much oil? It might piss off the Iranians, but what are they going to do about it? (Besides rake in more profits from their oil.)

    Or, they could broker economic peace in the region, allowing Iran, Iraq, Saudi Arabia, and Russia to all sell less oil for more money.

    The layers of irony make this a farce… War in the Middle East has led to a glut of oil, rather than higher prices, as the players try to pay for their wars by selling oil. Also, all the players are selling oil as fast as ever they can, beggaring them all as quickly as possible even as they jockey for preeminence. On top of that, the Politically Correct in the West have decided to move away from fossil fuels, even as their economies stagnate.

    Comedy, comedy, all is comedy.

    • f1b0nacc1

      How about the Russians cutting a deal with the Saudis involving an ‘accident’ at one of the Iranian nuclear facilities? After all, Russia doesn’t have very much interest in a nuclear Iran either…

      • Jim__L

        Considering how many US allies have nukes compared to how few Russian allies have nukes, I’m not sure that Russia can be relied upon to support non-proliferation in Iran.

        • f1b0nacc1

          This presumes, of course, that the Russians would consider the Iranians allies, as opposed to ‘fellow travellers’. In the long run, the Iranians despise the Russians just as much as they do the West, but the Russians are convenient stooges at this time….

          • Jim__L

            I think you’re magnifying the Iranians out of all proportion to their actual power and potential. Russia may be a shadow of the USSR, but it is still 4x the economy of Iran, and leaps and bounds ahead of them in technology — military tech in particular.

          • f1b0nacc1

            If this was about an open slam-bang shoot-em up war, I would agree with you, but that isn’t what I am talking about. Iran represents militant Islam, which the Russians (with their large, restive muslim minorities, particularly in the southern regions) are deeply uncomfortable with. Iran with nukes might even be worse, though the Russians have little that they can do about that in the short term, which is where they are fixated right now. Iran has been a traditional Russian boogeyman, this goes back to the post-WWII era, and further back than that if you want to look there.
            Of course the Russians could win a war, but that isn’t the sort of conflict we are talking about. Right now the Russians are more worried about internal uprisings (aided and abetted by the Iranians, who have no more love for them than they do for us) than a conventional war.

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