Policy Briefs
from
Caspian Studies Program
Russia's Role in the Shifting World Oil Market
Lynne Kiesling and Joseph Becker
Caspian Studies Program, Policy Brief Number 8
Preface
In the immediate aftermath of the events of September 11, OPEC members -- led by Saudi Arabia -- launched a campaign to promote a major cutback in oil production. These OPEC producers believed that a reduction in supply was necessary in order to maintain high oil prices in the face of the decrease in world demand that followed the terrorist attacks on the United States. OPEC''s campaign, if it had been successful, could have further crippled a world economy that was already in recession in the fall of 2001.
However, OPEC''s campaign to reduce oil production was not successful, largely due to the refusal of the main non-OPEC producer -- Russia -- to cooperate with the cartel''s efforts. Moscow''s behavior and its subsequent impact on the world oil market illustrated that the key to energy security is not just obtaining large volumes of oil, but more importantly ensuring supply from a variety of producers that do not act as a monopoly. Russia and other non-OPEC sources cannot replace the volume of oil production from Saudi Arabia and other cartel members, but the existence of independent actors outside the organization can change the dynamics of the world oil market and diminish the power OPEC has over market trends.
The emergence of a diverse array of oil suppliers not only contributes to world energy security, but also lessens the ability of major oil producers to use pricing as a tool to further their political agenda. The lukewarm support of Saudi Arabia and other Persian Gulf states for the U.S. anti-terror operation underscores how divergent their political program may be from that of the United States.
As this brief indicates, Russia has emerged as the number two oil producer in the world market and its production share is estimated to continue to grow, especially due to the privatization of Russian oil companies. Russia''s independent behavior in the oil market has caused a significant erosion in OPEC''s monopoly power. Further investment in Russia''s oil sector -- as well as in the oil sectors of the other major Caspian producers, Azerbaijan and Kazakhstan -- should help the United States to promote greater world energy security.
Brenda Shaffer, Ph.D.
Research Director
Caspian Studies Program
Harvard University
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CSP Brief #8.doc