Russia has leaped out of its post-Communist muddle, heading determinedly west. Last week it crossed a remarkable threshold by joining the North Atlantic Treaty Organization as a nonvoting partner.
Close to the center of this historic embrace between former antagonists lie two, tantalizingly related developments. One is the growing camaraderie between Russian President Vladimir Putin and US President George W. Bush. The other is steady recovery since 1994 of Russian oil exports. Inevitably, the suggestion has arisen that the US government encourage imports from now-friendly Russia to displace oil from the presumably unreliable Middle East. It's a bad idea.
Oil in trade
The US and other consuming nations should indeed seek maximum availability of oil in trade from as many sources as possible. It would be self-defeating, however, to promote logistically difficult bilateral trade for no reason other than to shut out supply from disfavored sources. Strategic preference for Russian over Middle Eastern oil would fail this test.
To be sure, growth in Russian oil exports from 3.16 million b/d in 1994 to a projected 5 million b/d this year is good for the US and other major oil consumers. It's also a legitimate source of competitive concern for Middle Eastern exporters.
But the natural market for Russian oil is predominantly European. As production grows from fields in Eastern Siberia and Sakhalin Island and as transportation infrastructure develops, Asia will gain importance. At present the US is a minor and intermittent destination for Russian oil. Geography will keep it that way until an outlet on the Adriatic Sea opens through integration of Russia's Druzhba system with the Adria pipeline in Hungary and Croatia. Even then, volumes of Russian oil reaching the US will be small.
To US security, this doesn't matter. The origin of imported supply has much less strategic importance now than it did before computers and financial instruments modernized oil markets. What's strategically important is that crude oil and products be free to enter trade under commercially rational terms. In the modern market, the US benefits by simple virtue of Russia's rising exports, no matter where they go.
The US government should encourage the political and economic liberalization that have enabled Russian oil exports to rebound. It should resist the temptation to officially promote US imports of Russian oil at the expense of oil from the Middle East or anywhere else. Such a move would raise import costs, distort markets, and contribute nothing to supply security.
The government also should doubt the assumption that oil supply from Russia would be more reliable than that from the Middle East. In recent years Middle Eastern producers have been more reliable as suppliers than the US-with its penchant for sanctions-has been as a buyer. And their susceptibility to political disruption is no greater than that of Russia, which despite recent steadiness still harbors unhealthy levels of longing for the centrally planned past.
To resist prejudicial promotion of bilateral oil trade is neither to regret improved relations between Russia and the US nor to deny recent gains by the emergent Russian economy.
The improved relations are evident in formation of the NATO-Russia Council, which the US could have blocked, and in signing of the first Russian-American arms control treaty in a decade. They're further-and perhaps more importantly-evident in the ability of Bush and Putin to disagree courteously over Russia's commercial ties with Iran.
Oil production
The Russian economy, of course, hinges on oil production, which has recovered to a projected 7.4 million b/d this year from a 1996 low of 6 million b/d. A dozen major oil and gas companies have emerged from Russia's sometimes-turbulent privatization of the 1990s (OGJ, May 27, 2002, p. 20). Their vitality is beginning to attract the investment from abroad for which Russia's enormous oil and gas resource has long been starved. Russian oil production is reasonably projected to reach 10 million b/d by 2010.
Even if none of the oil reaches American territory, the increase, by boosting volumes in trade, will help US security of supply. The best course for the US is to keep supporting the economic liberalization that made Russian progress possible and to not impose market distortions of its own.
