Two unrelated political events will occur at midmonth with potential to alter the immediate future of the international oil and gas business.
One event could affect the speed with which investment opportunities develop in Russia. The other will say much about energy market growth in the U.S.
On Dec. 17, Russia will hold regional and parliamentary elections. At least that was the plan at this writing.
Former President Mikhail Gorbachev has been complaining in newspaper articles about attempts by the current regime to delay or invalidate the parliamentary vote. He says the Central Electoral Commission tried but apparently failed to disqualify two parties led by possible opponents to President Boris Yeltsin in presidential elections next June. And the Constitutional Court is reviewing constitutionality of the election law. It could change the law just before the vote or rule after the election to invalidate results.
Prospects for incumbents in a fair election are not thought to be good.
Gorbachev may be overstating the governments reluctance to let voting proceed. Yeltsin might have used bombings in Chechnya and of the home of a member of the lower house as excuses to delay the elections. He had not done so as of the middle of last week.
Production sharing measure
Apparently wanting to act before the elections, Duma, the lower house, last week passed long-awaited production sharing legislation for oil and gas ventures. Because the legislation did little to improve the certainty of deals between foreign entities and the Russian government, early responses from industry were cool at best. But passage of any law at all is noteworthy.
By now, non-Russian oil and gas companies know better than to expect rapid progress in Russia. Whats important is that the country remain headed in the right directiontoward democratic behavior, toward a genuine embrace of capitalism, toward a legal framework for commerce on which commercial interests can depend, and toward an eclipse by law of the brute force now increasingly influential in everyday Russian life and in the Kremlins relations with other formerly Soviet states.
The international oil and gas industry has $50 billion or more of potential investment riding on progress, however slowly that progress may unfold. What the industry must hope for mid-December is that elections be held and that they be fair. Immediate progress in Russia depends more on continued use of democratic processes than on who holds office afterward.
The U.S. budget
In the U.S., the pivotal political issue is the federal budget. Energy market growth for the next year or so depends on a deal between President Clinton and Congress on deficit reduction.
The reason for this has to do with a simple calculus by which Clinton has navigated policy throughout his first term. It works like this: Clinton acts serious with Congress about the budget, bond traders turn optimistic, Federal Reserve Chairman Alan Greenspan acts to ease rates on short-term government paper, and interest rates fall. Homeowners refinance mortgages had have more cash to spend. Businesses borrow money to invest. The economy grows.
The calculus receives a test in mid-December. The latest deadline for action on the budget is Dec. 15. And the Federal Reserve will meet to act on monetary policy on Dec. 19.
Clinton, like all presidents, wants a healthy economy in the last year of his campaign for reelection. Falling interest rates now, which depend on a budget deal and the expected responses of bond markets and the Federal Reserve, would help him get one. A healthy economy also would make energy demand grow.
Industry must never lose sight of background developments such as these. The oil and gas business in general may be moving away from government ownership and regulation. But the role of politics in oil and gas affairs remains as strong as ever.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.