CIAO DATE: 04/03

Russia’s Role in the Shifting World Oil Market

Lynne Kiesling and Joseph Becker

May 2002

International Security Program
Belfer Center for Science and International Affairs (BCSIA)
Harvard University

 

Executive Summary

Recent changes in Russia’s domestic oil industry have had dramatic effects on world oil markets, including Russia’s emergence as the number two exporter of oil after Saudi Arabia.1 These effects are occurring even though Russia is not close to fully exploiting its reserves. Russia’s oil industry has large growth prospects, and this potential will allow Moscow to take a greater market share away from OPEC in the future. A number of factors will facilitate this trend. Russia’s target oil price is lower than OPEC’s, which gives it an incentive to continue exporting beyond OPEC’s wishes. Also, Russia’s oil industry is more privatized than the oil industries in Persian Gulf states, which allows it to be more entrepreneurial in attracting investment and joint ventures.

Three major developments will lead to Russia assuming a stronger position on the international oil market, and will bring customer benefits and increased efficiency in the international oil industry as a whole:

1. The Caspian states of Azerbaijan and Kazakhstan will be bringing more oil to market over the next decade;
2. The investment climate in Russia and in the Caspian region in general is improving; and
3. Economic growth in Russia and its neighboring countries (including China) will further shift the dynamics of world oil away from OPEC.

This policy brief explores the interplay of these economic factors and the effect they will have on the international oil market.

Full text (PDF format, 8 pages, 360 kbs)