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Gaming OPEC

For quite a while now, if you wanted to know what was strategically important to the Kremlin, you just had to follow the passport stamps accumulated by Deputy PM Igor Sechin (vacations in Cuba and Caracas, tea with Viktor Bout, etc.).  As such, on Sunday he popped up in Vienna, Austria for a meeting with the heads of the oil cartel OPEC, happy to flaunt Russia’s important-sounding status title as “permanent observer.”  As usual, the Russians were rhetorically supportive of the cartel, and Sechin gave the longest speech to the group in his country’s history.

But if Russia is so supportive of OPEC, why have they never become a member?  There are plenty of answers to that, but our theory over here is that 1) they want to benefit from the price manipulation without having to commit to cuts in output, and 2) a general, anti-institutional perspective that seeks avoidance of rule-based structures.  OPEC may be a mafia, but it is a structured one with bylaws, voting, and group decision making – all anathema to Moscow.

So how long is OPEC willing to let the Russians play the flirtation game?  Some signs of strain are already showing.  Secretary General Abdalla el Badri took an indirect shot at the Russians today in commenting about oil producers who “take advantage” of the organization, and a reporter on a WSJ blog is indicating that despite the empty statements this week, Moscow may be trending toward a “more meaningful” relationship with the cartel.

Hounded by a pack of journalists on his arrival, Russian deputyprime minister Igor Sechin led a parade of government officials toOPEC’s latest shindig in Vienna. He proposed a slew of things forRussia and OPEC ministers to work on together, such as coordinating(i.e., raising) taxes on foreign oil firms’ crude production andrefining operations.

But Sechin, at his third OPEC meeting in six months, again signallyfailed to promise any big commitments to keep barrels out of the globalcrude market even as OPEC members said they’d push on with shoring upcompliance with their own output cuts.

That’s obviously good news for consumers as Russia, the world’s topoil producer, and OPEC pump almost half the crude used daily globally.Any formal and disciplined coordination between the two could easilyspell higher oil prices.

Mr. Sechin claimed Russia cut production and exports in recentmonths but most OPEC officials weren’t buying it. Exasperated, they sayindependent data show Russia boosted exports by almost 700,000 barrelsa day the past six months, even as OPEC members shaved their ownproduction.

But Russia is still flirting with OPEC and may yet consummate a moreformal relationship with the group. For its part, OPEC is still open tothe courtship. Mr. Sechin said Sunday that Russia wants, among otherthings, a “permanent representative” stationed at the OPEC secretariat.