Russian oil reserves attract U.S. interest
By Gregory M. Drahuschak
FOR THE TRIBUNE-REVIEW
Sunday, February 27, 2005
To quote Yogi, it was dejà vu all over again.
Nearly four years ago, Russian President Vladimir Putin and President George W. Bush met in Texas to discuss the U.S. attempt to establish a missile defense system. By all accounts, the meeting was amiable and resulted in a reduction in the long-range nuclear arsenal of both countries. At the time, there was some thinking that, in addition to the missile issue, there were discussions of cooperation on other fronts, most notably energy.
Last week, the two leaders met again. Again, the talks appeared to be amiable. Missile-related issues were not the top items on the agenda, and although energy might not have been, either, clearly this time oil was much more clearly in focus than it was during the 2001 meetings.
The potential for energy cooperation was not lost on the market. Not long after the two presidents concluded their joint news conference, the market shook its early doldrums and moved to a solid gain.
Energy cooperation was not the only potentially positive result of the meeting. Potential cooperation on terrorism and the Iranian nuclear issue undoubtedly were embraced by the market, particularly considering that a recent poll of corporate executives cited international terrorism as their top worry.
However, Russian oil reserves -- that by most accounts are measured in hundreds of billions of barrels -- keep rising to the top of the list of the most important aspects of a close U.S.-Russian relationship.
Friendly conversation, however, does not necessarily translate into friendly actions. Other than initial moves to cut the nuclear stockpile, little else appears to have resulted from the 2001 Bush-Putin meeting. Hope springs eternal, as they say, so there is hope that last week's extension of graciousness will result in something of lasting benefit for both countries.
In Putin's pledge of his nation's commitment to democracy, he seemed to allay fears that the Russia we all knew and feared during the Cold War era was not resurfacing. This alone is a positive.
If you believe the old cliche about he who has the gold rules, the holder of "black gold" might seem to have the upper hand, which might mitigate the Russian's willingness to be as cooperative as the U.S. might like.
But while the Russians hold the gold, can they do anything with it?
Recent privatization of business in Russia might seem to have suffered a major setback with the government's actions regarding the nation's second-largest oil firm, Yukos. But hand-in-hand with the move toward democracy in Russia is the need to embrace a vibrant capitalistic economy. Allowing U.S. oil firms to come into Russia and help the country do something with its golden asset could strike the perfect relationship between the United States and Russia.
Unfortunately, this hope is the same one that has been around for more than 30 years. Although the "us and them" combative relationship of the Cold War Russia no longer exists, there is little tangible evidence to suggest that much has happened to change the U.S.-Russian economic relationship.
The immediate benefit from last week's meetings appears to be the Russian pledge to provide more liquefied natural gas (LNG) to the United States. Now all we have to do is rid ourselves of the NIMBY (not in my back yard) attitude toward LNG facilities.
Nevertheless, even if we do strike a very friendly and symbiotic economic relationship with the Russians, all we may be doing is postponing the inevitable unless we get serious about a real energy policy that includes more than looking for additional oil reserves. Here, again, however, 30 years have passed from the time we first were held hostage to oil, yet we still are talking about developing non-fossil fuel alternatives.
But despite this, the Gross Domestic Product report Friday showed growth at a healthy 3.8 percent pace. Corporate profits are at record levels, and the stock market is again flirting with another new recovery high.
The market's resilience in the face of oil near $52 a barrel and the prospect that short-term rates are heading higher is somewhat amazing.
It makes you wonder what would happen if anything positive on the energy front really did happen. Perhaps this time, hope will spring into reality.
Gregory M. Drahuschak is first vice president of Janney Montgomery Scott Inc., Pittsburgh.
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