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. Last Updated: 07/27/2016

Russia's 'Oil Diplomacy'

Russia now has a chance to return to the Middle East. This time, however, it won't be to make appeals to challenge the political might of the United States in the region or to participate in regional conflicts. Rather, "oil diplomacy" will be playing a leading role in Russia's policies in the region.


The oil industry has contributed much to Russian foreign policy successes. The government of Prime Minister Viktor Chernomyrdin has quietly managed to guarantee that Russian oil companies would have a firm hold in all the post-Soviet countries where oil is extracted. Russia oil policies have succeeded where diplomacy has failed, for example, over the Black Sea Fleet question in Ukraine or achieving a peace settlement in Tajikistan. The ease with which Moscow reached an agreement with Sofia and Athens over construction of a pipeline through the Bosporus Straits, which would allow it to export oil to Europe (and which also threatens ecological disaster), contrasts even more with the failure of Russian diplomacy in Bosnia.


It is obvious that much of the oil industry's success has to do with the government's involvement with strengthening the oil companies rights to exploitation of oil deposits in post-Soviet countries. The economic, technological and financial backwardness of Russia necessitated finding a "trump card," which would allow the country to buy time to carry out reform. It is oil and gas on which the Kremlin is mainly counting in the fight for political stability and rebuilding the economy. These resources are helping Russia to get through the transitional economic period and move toward democracy and a market economy.


The strength of LUKoil in Azerbaijan and Kazakhstan has made its president, Vagit Alekperov, no less influential than the local ministers there. The company has managed to show Western oil companies such as Chevron and British Petroleum that if they want to work in post-Soviet governments, they will need to collaborate with Russia.


But today the Russian oil industry is preparing to launch itself into the Middle East. And the government is supporting it. Russia's move in this direction is in part guided by the geopolitical weight of the region in world politics. The concentration of fossil fuels gives the region a primary role in the world's energy security, and most of all that of Europe. Russia's interests there are based on a combination of geopolitical, energy and military interests, especially in the sales of arms.


Russian oil producers, including LUKoil and Yukos, understand that the current situation does not allow any hope to affect Western companies in Saudi Arabia or Kuwait. Nonetheless, their resolve to work in the Middle East has not lessened. For example, Slavneft has long expressed its firm wish to work in Iran, and LUKoil is turning to Iraq.


Russian oil producers see the possibility to assimilate new technology and gain experience in drilling and extracting from the local conditions in the region. This is what has occurred, for example, with LUKoil in its work in Tunisia.


But the main thing for the oil producers is extracting the oil itself. It is likely that the country will soon place its stakes on Iraq. The interest of Russia's producers there is owing in part to the fact that it was Soviet geologists who discovered and studied a significant part of Iraqi deposits and helped develop the industry. In its time, the Soviet Union was actively involved in the re-export of Iraqi oil to India, earning considerable revenues from this. Russia now has detailed maps of the oil deposits of this state, and skilled workers still remain who were trained by Soviet specialists. The Iraqi ambassador to Russia once pointed out that 75 percent of the country's energy sites were built with Moscow's cooperation, and he underscored the fact that "there is not a single point in Iraq where there does not remain some trace of Soviet specialists." It is not surprising then that Russian oil producers consider moving into Iraq a priority and feel that working there will be much easier than in other potentially attractive oil-extracting countries.


Today, it is very likely that Russian companies, in particular LUKoil, will complete a 23-year contract with Iraq to share the production of oil at the Western Kurna deposits. The deposits there are estimated at 958 million tons. For comparison, the oil reserves of the Caspian Sea, which Azerbaijan is now claiming, and which has aroused such political passions in Russia, the Caucasus, Europe and the United States, amount to some 530 million tons.


Plans to create a joint venture at Western Kurna will begin after the decision to remove the embargo from Iraq is settled at the United Nations. The plans to work there are being made without the participation of Western companies.


The Russian oil companies' plans to work in Iran seem much more complicated. Tehran has expressed much interest in collaborating with Russian companies. Iran, however, does not have the same longstanding ties with Russia as Iraq. Russian companies will most likely work in the country nonetheless. Russia and Azerbaijan have notably been lobbying hard for Iran's participation in extracting oil in the Caspian.


Russia is truly preparing to return to the Middle East. It was inevitable that this would occur sooner or later. Russia is now in a comparatively strong and competitive position and has the means of applying pressure to Western companies who are working in the former Soviet Union. This return has no ideological subtext. None of the oil producers are ready to help rebuild communism or fight with Western imperialism. It is simply a matter of the fight for profits. And this will mean that the competition here will be very sharp indeed.





Vladimir Razuvayev is the head of the Center for Eurasian Studies. He contributed this comment to The Moscow Times.