Do The Math

From Yulia Latynina’s column in the Moscow Times:

On June 17, President Dmitry Medvedev and Chinese President Hu Jintao signed an agreement in which Russia will sell 300 million tons of oil to China over 20 years for $100 billion. That breaks down to $57 per barrel.

In order for Russia to deliver that oil, a new pipeline must be built to China. This is something that Yukos had originally planned to build by the mid-2000s at a cost of $4 billion.

By March 2008, however, the price for the project had risen to $29 billion. At that cost, oil deliveries through the pipeline would only recoup expenses given oil prices of at least $80 per barrel. But Russia has agreed to a price of just $57 per barrel for its exports to China. (…)

It is not difficult to see that the Kremlin’s China strategy isidentical to the course pursued by former Yukos CEO MikhailKhodorkovsky — with only one significant difference. If you build anoil pipeline for only $4 billion, develop the region’s oil deposits andsell that oil to China at market prices, you turn eastern Siberia intoan extremely powerful economic zone in which the interests of bothcountries are fused like Siamese twins. This would make a war betweenRussia and China far less likely since a conflict would result inunacceptable economic losses to both sides.

But if you buildthe world’s most expensive oil pipeline for $29 billion while signing acontract to export that oil at a loss and if your idea of developingoil deposits in eastern Siberia boils down to dismantling Yukos andappropriating its assets, then the loss of those territories becomesinevitable — without a single shot being fired.