More on the Political Economy of Oil

Jay Moore research at SPAMneravt.com
Wed Aug 16 08:08:29 MDT 2000


Oil boosts value of Arctic for Russians
Patrolling of area, once done for strategic
military reasons, now motivated by money

JOHN HELMER
Special to The Globe and Mail
Wednesday, August 16, 2000

Moscow -- During the Cold War, the Arctic Ocean hid enough missile-armed
submarines to threaten Canada and the United States with so much destruction
as to deter war.

Until the mid-1970s, the Arctic submarine force was Moscow's insurance in
case its nuclear forces deployed elsewhere were knocked out in the early
stages of a missile exchange with the United States and North Atlantic
Treaty Organization. The narrowness of the entrances and exits to the Arctic
seemed to guarantee its defence against intruders.

Now, many Russians are asking whether the area is so strategically valuable
that it is worth risking Russian lives to defend.

What few Russians, or most Westerners, realize, however, is that the area is
about to become economically valuable, and thus more crucial for Russian
vessels to patrol. The reason is oil.

After the collapse of the Soviet Union a decade ago, Russia's oil companies
found that the country's most valuable asset could no longer be shipped to
market through domestic ports on the Baltic Sea. Instead, Russian oil was
forced through Latvia and Lithuania, at points that could be easily closed
by Russia's rivals and enemies.

To avoid that, the Kremlin and Russia's oil and gas giants have been
planning for the day when the new oil fields of northwest Russia have
outlets to the sea through Russian ports. That has meant the revival of
interest in the Arctic Ocean, and projects worth billions of dollars to lift
the oil, pipe it, store it and ship it from the Arctic shore, through the
Pechora and Barents seas.

Due east of the Kursk's position, a new oil terminal is being built at
Vanandei by LUKoil, Russia's leading oil producer. The first loading of
crude oil is to begin there this week.

Oil from inland wells will be piped to holding tanks at Vanandei, and then
piped offshore to a floating facility, where tankers will dock. The current
capacity of the Vanandei terminal is 4.5 million tonnes a year (100,000
barrels a day). LUKoil plans to expand this threefold within five years.

The company is also commissioning a fleet of icebreaker-tankers to ferry the
cargo to Murmansk, where the oil will be transferred to larger vessels for
shipment to Western Europe.

Officials of Gazprom, the world's largest gas company, have equally
ambitious plans to develop the Prirazlomnoye oil field, which lies under the
Pechora Sea.

Sovkomflot, Russia's leading shipping company, says it anticipates a time,
not more than a decade away, when the volume of Arctic oil will be so large
it will require fleets of supertankers to move the product to its European
consumers.

The new strategic reality in the Arctic Ocean is simple: There is at least
as much untapped oil there as in all of the Caspian Sea and Central Asia
combined -- all of it belonging to Russia.

Guarding the sea lanes for that oil to reach market, and keeping intruders
out, is a natural goal for the Kremlin and the Russian navy -- as natural as
Washington's desire to protect the movement of oil through the Persian Gulf.

That is the new reason why the Kursk was engaged in an exercise above the
69th parallel.






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