Changing the Game
Many in the oil industry have banked on the continued expansion of Russian oil production and reserves to keep the balance of power from shifting too rapidly toward the Middle East and its huge untapped resources. (See my posting of 9/30/04.) As described in this article from the Financial Times (subscription required) a new ruling in Russia requiring majority Russian ownership for any company bidding on energy and minerals prospects may alter this calculation significantly.

Throughout the course of the effective re-nationalization of Yukos (see my posting of 6/30/04) the key question has been whether President Putin was pursuing a personal vendetta against Mr. Khodorkovsky, seeking to rectify the excesses of the Yeltsin years, or putting down a marker for government control of a strategic industry sector. It is looking increasingly like the latter interpretation is the correct one, unless all three are in fact true.

This is not particularly good news for consumers of oil products around the world. It is going to take solid growth in places like Russia, Africa and Latin America to offset the production decline in the US and North Sea and the reticence of OPEC to boost capacity. Requiring the international major oil companies, which are currently generating gobs of cash, to channel their investments in Russia through minority positions in local companies will at least slow down the rate at which they are willing to invest, if the Yukos affair hasn't scared them off entirely.

Although many Russian companies have done well to restore production to near previous peak levels, they lack some of the technical and project-management skills to handle projects of the scale now on the horizon. For that matter, Yukos was the most successful of the Russian oil companies at boosting production from its reserves, and it is questionable whether the personnel and attitude that made this possible will survive absorption into Rosneft, the national oil company that is merging with Gazprom, the state-owned natural gas giant.

So do all hopes now shift to West and North Africa?