Monday, September 20, 2004

Chess, Anyone?
The most interesting news I saw over the weekend was the report that Yukos, the embattled Russian oil giant, has revised its estimated oil reserves upward by a factor of five, to 93.7 billion barrels. Note that this compares to published reserves, as of 1/1/03, of 60 billion barrels, not for Yukos but for all of Russia. Even allowing for the inclusion of some gas, this is a stunning announcement. If accurate, it has major implications.

Most importantly, as some have suspected, it would indicate that Russia has significant untapped and previously unreported oil reserves that put it in the same league as the larger Middle Eastern producers, such as Iraq, if not with Saudi Arabia itself. At the same time, this would throw pessimistic estimates of when Russian oil production is likely to peak into a cocked hat. And it would make Russia that much more attractive an investment play for the international oil majors, many of which are struggling to increase production by more than a percent or two.

However, such an announcement cannot be divorced from its context, the confusing confrontation between Yukos and the Russian government. Is this intended as a signal to the government that the consequences for the Russian economy of the threatened dismemberment of Yukos are far beyond the Kremlin's calculations? That Yukos, as presently constituted, is better equipped to boost Russia's oil production--and thus its export earnings--than any possible successor to its assets? At the very least it is an interesting way of raising the stakes in what is already a very high stakes game. While it must be taken with a healthy dose of skepticism, given the timing, it certainly qualifies as an amazing development.

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