Axis of Oil?

David G. Victor and Nadejda M. Victor

From Foreign Affairs, March/April 2003

Article preview: first 500 of 5,059 words total.

Summary:  Russia and the United States have settled on oil as the basis of a new partnership. This move is dangerous, however, because it ignores the divergent interests of the two countries and their inability to influence global oil markets. Indeed, war in Iraq could tear this partnership apart. A far better basis for U.S. - Russian ties would be the two nations' durable common interest in developing and safeguarding nuclear power.

David G. Victor is Director of the Program on Energy and Sustainable Development at Stanford University and Adjunct Senior Fellow at the Council on Foreign Relations. Nadejda M. Victor is Research Associate in the Department of Economics at Yale University and in the Program on the Human Environment at Rockefeller University. This essay is based on a presentation given to the U.S.-Russia Dialogue of the Aspen Institute.

THE NEW RUSSIAN-AMERICAN RELATIONSHIP

Ever since the Iron Curtain came crashing down, American and Russian diplomats have been searching for a special relationship between their countries to replace Cold War animosity. Security matters have not yielded much. On issues such as the expansion of NATO, stabilizing Yugoslavia, and the war in Chechnya, Washington and Moscow have sought each other's tolerance more than cooperation. Nor have the two nations developed much economic interaction, as a result of Russia's weak institutions and faltering economy. Thus, by default, "energy" has become the new special topic in Russian-American relations.

At a Kremlin summit in May 2002, Presidents George W. Bush and Vladimir Putin pledged to work together to reduce volatility in global energy markets and promote investment in Russia's oil industry. Soon after, at the first-ever summit of U.S. and Russian oil executives in Houston, Russia's energy minister, Igor Yusufov, reiterated this goal. The two governments have created a special working group on energy cooperation, and Russia will host the next commercial energy summit in 2003. In Moscow, especially, the potential of new oil ties has attracted extensive media coverage and political speculation. For instance, Grigory Yavlinsky, head of Yabloko, one of Russia's leading opposition parties, has suggested that the United States and Russia could sideline the Organization of Petroleum Exporting Countries (OPEC) as the arbiter of world oil prices.

This enthusiasm is misplaced, however. A collapse of oil prices in the aftermath of an invasion of Iraq may soon lay bare Washington's and Moscow's divergent interests. Russia needs high oil prices to keep its economy afloat, whereas U.S. policy would be largely unaffected by falling energy costs. Moreover, cheerleaders of a new Russian-American oil partnership fail to understand that there is not much that the two governments can do to influence the global energy market or even investment in Russia's oil sector.

The focus on oil has also eclipsed another area in which U.S. and Russian common interests could run deeper: nuclear power. Joint efforts to develop new technologies for generating nuclear power and managing nuclear waste could result in a huge payoff for both countries. These issues, which are the keys to keeping nuclear power viable, are formally on the Russian-American political agenda, but little has been done to tap the potential for cooperation. Given Russia's scientific talent and the urgent need to reinvigorate nuclear nonproliferation programs, a relatively minor commitment of diplomatic and financial resources could deliver significant long-term benefits to the United States.

A MARRIAGE OF CONVENIENCE?

On the surface, energy cooperation seems a wise choice. Russians are rich in hydrocarbons and Americans want them. Oil and gas account for two-fifths of Russian exports. In 2002 Russia reclaimed its status, last held in the late 1980s, as the world's top oil producer. Its oil output in 2003 will top 8 million barrels per day and is on track to rise further. Russian oil firms also made their first shipments to U.S. markets in 2002 -- some of it symbolically ...

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