Europe Presses Russia on Euro

UnknownPrime Minister Mikhail Kasyanov, shown here with European Trade Commissioner Pascal Lamy, said only the market can decide how to price oil.
BRUSSELS, Belgium -- The European Union has held informal talks with Russia on its long-sought aim to have Russian oil exports priced in euros, European Commission President Romano Prodi said Friday.

"Russia is ... given its own national interest, drawn to having its imports and exports denominated in euros," Prodi told a news conference after an EU summit in Brussels.

But Prime Minister Mikhail Kasyanov said his government would not force the market's hand. He said it was up to exporters to decide if they should to stick to the dollar or buck the international energy markets and price oil in euros.

"This topic cannot even be discussed. There can be no administrative decisions here. The market decides," Kasyanov was quoted as saying by Interfax.

"Oil is a commodity that is traded for dollars, and if it's sold for dollars, it means that suits the buyers and the sellers."

President Vladimir Putin, traveling 10 days ago in Russia with German Chancellor Gerhard Schroeder, said he would not rule out denominating oil exports in euros.

The remark raised hopes a long European campaign to make the euro a common currency in the region's energy markets might come to fruition and brought a favorable response from European Central Bank President Wim Duisenberg.

"I think it is a good idea for the euro as an international currency," Italian Prime Minister Silvio Berlusconi told the Friday news conference in Brussels.

But Putin's remarks may have been less a promise than a new bargaining chip in tough talks with the European Union on Russia's bid to join the World Trade Organization, blocked by Brussels, in part, over what it sees as unfair gas pricing.

"Putin's comments were framed in the context of the conversation he was having at the time with Schroeder," ING emerging markets economist Phil Poole said.

"He was criticizing the EU on world trade issues, being fairly critical vis-a-vis Gazprom, that the EU is being unfair ... he wanted to throw something in that was more positive, that would appeal to European politicians."

The head of the European Commission's energy directorate, wrapping up talks with Russian officials in Moscow on Friday, declined to say whether the talks specifically covered redenominating oil exports in euros.

"We have been trying to convince our partners to use the euro in energy transactions," said Francois Lamoureux, in town with European Trade Commissioner Pascal Lamy, whose Thursday talks on Russia's WTO bid yielded no breakthroughs.

Lamoureux said the issue of euro-denominated exports was also crucial for European importers of Russian gas, who are on long-term contracts with Gazprom, supplier of a quarter of Europe's gas.

Some economists say Russia, which holds 75 percent of its reserves in dollars, would do well to diversify its foreign currency inflows. The bulk of Russian imports are in euros.

"Our companies buy lots of equipment from Europe in euros. Settling the accounts in euros would naturally be more agreeable," Energy Minister Igor Yusufov said in an interview with German newspaper Handelsblatt published Friday.

Still, oil companies have not spoken their minds on the issue. Poole of ING said that as long as the dollar reigned on energy markets, it could be a tough proposition for them.