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RUSSIA TIGHTENS GRIP ON OIL SUPPLIES

Russia's stranglehold over dwindling global energy resources was dramatically confirmed yesterday when new figures showed that the country has become the world's biggest exporter of oil.

With production in August hitting record levels, Russia toppled Saudi Arabia from the number one spot. It is already the world's largest exporter of gas, and supplies around a third of the European Union's consumption.

The news is likely to heighten unease in EU capitals over the Kremlin's tightening grip on energy reserves. There are fears of a repeat of January's debilitating gas war between Russia and Ukraine – which saw winter supplies to EU consumers cut off for weeks. Members of Opec agreed to cut oil production last year in response to the economic crisis. Moscow indicated last December that it would follow suit but instead ramped up production in the second quarter of 2009, as new fields in Siberia came on stream.

Russia produced almost 10 million barrels of oil a day in August, according to International Energy Agency figures – a post-Soviet record. Relations with other oil producing countries are likely to come under increasing strain, since Russia is now profiting from Opec production cuts.

"The fear is that Russia will get a big head," Andrew Neff, an oil analyst with Global Insight in Washington, told the Observer. "Not only is it the world's largest gas exporter but now the world's biggest oil exporter as well. The question is will Russia want to exploit its feeling of superiority and demand a seat not just at the table, but at the head of the table."

Yesterday, however, the head of the Russian energy giant Gazprom denied claims that gas and oil supplies were used as a political weapon – insisting that the country was a reliable supplier. Alexei Miller said that the EU would remain Russia's most important client, despite the construction of new pipelines to supply China.

Opec, Miller said, was no longer calling the shots in determining the world price of oil, currently around (£42) a barrel. He also said that Ukraine – through which 80% of the EU's gas travels – was paying for its own supplies on time. But he warned of a possible crisis in early February, two weeks after Ukrainians go to the polls to elect a new president on 17 January.

"I must say at the moment relations [with Ukraine] could not be better. I think there will be no problems until December. My Ukrainian colleagues say they will use between m and m in reserves to pay for Russian gas until the end of 2009," Miller said.

He added, however, that he wasn't sure Ukraine would be able to settle its debts to Gazprom in 2010: "When I met my colleagues from Naftogaz [Ukraine's state gas company] I asked them whether they will be able to pay next year. They replied to me in words I cannot repeat in polite company. They could be translated as: 'We don't know'."

Analysts say that there is a strong probability of another damaging gas war between Moscow and Kiev, which could halt deliveries to the EU. "The question is whether Ukraine will try to blackmail Gazprom and Europe. We have a very divisive presidential election coming up [in Ukraine]. There is a perfect storm brewing," Neff predicted.

One leading Russian oil executive said that the international community should not be alarmed about Russian production. "Russia has about 6% of the world's proven oil reserves," Segei Bogdanchikov, president of the Russian state oil company Rosneft, told the Observer. "We have 40% of the world's oil resources." Making a distinction between resources – that is, oil which has so far not been tapped and may not be extractable – and definite reserves, Bogdanchikov said: "We understand that resources are not oil in the field. On the other hand 6% allows us to look safely into the future. We are sure that resources are going to be reserves. We will act responsibly."

Over the past decade Russia has recovered its economic and international prestige largely because of the massive increase in energy prices. The main beneficiary has been Vladimir Putin, who has claimed credit for delivering increased prosperity to Russia's 142 million citizens. The biggest winners, however, have been Russia's oil-connected elite, who now enjoy lavish lifestyles.

Russia, however, has been badly battered by the global economic crisis, with GDP shrinking by more than 10% in the first half of 2009. The Russian government has been deeply anxious about the spectre of social unrest spreading across the country. The recent rise in oil prices has apparently banished such fears.

Yesterday Putin – currently Russia's prime minister – struck an optimistic note. He said that Russia was "modestly" edging out of recession, with growth of around 1% a month since June.

Guardian 13 September 2009


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