Russian recap

Falling oil prices have been a particular headache for Russia. Its economy is especially dependent on a healthy oil market and $22 billion/year from crude oil exports. The Russian government estimates the global price drop may halve growth of its gross domestic product this year to 1.2%. The large oil firms Lukoil and Yuksi recently urged the government to grant them tax breaks of up to $3.12 billion.

April 20, 1998

3 min read

Patrick Crow
Washington, D.C.
[email protected]

Falling oil prices have been a particular headache for Russia.

Its economy is especially dependent on a healthy oil market and $22 billion/year from crude oil exports.

The Russian government estimates the global price drop may halve growth of its gross domestic product this year to 1.2%.

The large oil firms Lukoil and Yuksi recently urged the government to grant them tax breaks of up to $3.12 billion.

Instead, First Deputy Prime Minister Boris Nemtsov said the government would restructure the back-tax debt industry owes and waive the 60¢/ton/1,000 km transportation tax until prices recover.

The oil price slump also is likely to depress the price the government gets May 29 when it sells its 75% interest in Rosneft, the last major oil firm still in state hands.

Kiriyenko's rise

Economic problems were the reason Fuel and Energy Minister Sergei Kiriyenko got a tentative promotion late last month.

President Boris Yeltsin shocked the nation by firing his entire cabinet and then surprised the country again by naming Kiriyenko prime minister. Kiriyenko's deputy, Viktor Ott, took over the energy ministry.

Kiriyenko, only 35, has little government experience. He had been energy minister only a few months (OGJ, Dec. 8, 1997, p. 24).

Now Kiriyenko outranks his former mentor, Nemtsov, who is expected to be a candidate to replace Yeltsin in the 2000 presidential election.

But Nemtsov has no regrets. He said, "I have known Sergei Kiriyenko for many years, for nearly 15 years. He is a very capable, organized, absolutely competent, and very energetic person, and one who is open for compromise."

Kiriyenko was chairman of a Nizhny Novgorod bank before he became president of the large Norsi refinery and then was named to the energy ministry.

The Duma initially balked at Kiriyenko's appointment but is expected to approve it eventually.

Caspian division

Meanwhile, Russia has changed its mind on the division of the Caspian Sea, promising a breakthrough in the longstanding dispute between it, Iran, Azerbaijan, Kazakhstan, and Turkmenistan.

Russia had argued that the Caspian is a lake and, under international law, would require its seabed oil resources to be developed jointly by the littoral states. Several of the other nations argued it was a sea and could be divided (OGJ, Sept. 8, 1997, p. 33).

The stakes are huge, since the seabed is believed to contain billions of barrels of untapped oil reserves.

Even if the sea is divided, several problems linger. Azerbaijan and Turkmenistan both claim fields in the middle of the Caspian-Chirag and Kyapaz (which Turkmenistan calls Serdar)-both of which Azerbaijan is developing.

And Russia insists on ecological protection of the sea, meaning that it objects to trans-Caspian pipelines, such as the one Azerbaijan and Kazakhstan are considering from Tengiz oil field to Baku. It said a subsea rupture in the earthquake-prone region would be a major environmental disaster.

The five nations are expected to continue talking separately and not sign a general pact until all issues are resolved.