by Joe Duarte, MD
Joe-Duarte.com & IntelligentForecasts.com
December 16, 2006
Editor�s note: Geopolitical issues and personal agendas threaten the world�s oil supply. In this analysis, Dr. Duarte explores the increasingly urgent situation in Russia. Readers familiar with Dr. Duarte�s work, both his daily analyses, and his appearances on the Financial Sense News Hour, are aware of the slow and steady movement by the governments of countries who own the world�s oil supplies. Aside from OPEC, though, a major player in energy, especially when it comes to natural gas is Russia. In this analysis Dr. Duarte looks at the latest developments on the Russian Front. This article is an excellent complement to this week�s installment of The Energy Report with Dr. Duarte and Jim Puplava. This analysis was originally posted on 12-12-06 at www.joe-duarte.com.
It's All About Putin
Global oil companies are in danger of becoming surrogates to governments whose countries own the world oil supplies. This is a significant reversal of fortunes for the majors, who for over a century have dictated the terms of the global oil equation.
From an investment standpoint, the next 12-18 months could be the ones that define the next quarter of a century.
Russian president Vladimir Putin is putting the finishing touches on his long term energy policy, by taking back assets financed by foreign companies and performing a backdoor nationalization of the Russian energy industry.
The latest set of steps are focusing on major projects in Siberia involving Royal Dutch Shell, and likely Exxon Mobil in the near future.
According to the U.K.'s Guardian, the Russian government has "forced" Royal Dutch Shell to cede its majority stakeholder position in a major liquified natural gas field, ceding the position to Russia's state owned natural gas behemoth Gazprom.
The article cites the situation as the result of "relentless pressure" being applied by the Russian government over a period of months.
The report added: "The Russian authorities are also threatening BP over alleged environmental violations on a Siberian field in what is seen as a wider attempt to seize back assets handed over to foreign companies when energy prices were low."
The Russians are denying that there is any connection between the radiation poisoning of key dissidents in London and the increasingly aggressive nature of its business dealings with foreign oil companies.
A key problem for Europe and the U.K. is the increasing reliance of both on Russian natural gas, which supplies as much as one third of Western Europe's energy supplies.
One of Russia's major goals is to own key power generation companies in the U.K., which is a situation under review, and felt to be controversial by many in the U.K.'s political power base.
Aside from political and perhaps other kinds of pressure, Russia has suddenly become very concerned about the environment, citing potential environmental violations by foreign and non government owned Russian oil companies as a reason for aggressively reviewing the massive projects.
According to the Guardian, despite environmental concerns "even non-governmental organisations have expressed surprise at the way the Russian authorities have taken up environmental issues since the summer after taking little interest before."
In effect, what we're seeing is the Russian government attempting to disguise its intentions to nationalize foreign oil assets by using environmental and other pretexts as the reason.
To be sure, it's Russia's oil, given its territorial sovereignty. Yet, it is obvious that the methodology is less than tactful.
More than anything, it is the relentless pace of attack on the majors, and the feeling of inevitability that should be of concern.
The world's oil supply is now openly being used as a political weapon, and with reckless abandon.
In Russia, the government is suddenly turning green, as an excuse to remove foreign oil companies from major ownership roles in its energy industry, after the foreign companies have spent billions of dollars and often over a decade developing projects on Russian soil.
In Venezuela, the situation is showing an eerie parallel, and in many ways has advance further than the developments in Russia.
More and more of the world's oil reserves are being wrestled from the "majors." And it's not a question of American companies being singled out. Total, a French company is having problems, Statoil, an Norwegian company is having problems, and so is BP.
In other words, even if we don't have a record setting winter, there are plenty of geopolitical reasons to keep oil prices near the $60 range.
For the Federal Reserve, this is yet another reason not to raise interest rates, now, or in the near future, barring a break out of uncontrollable inflation.
© 2006 Joe Duarte, M.D.
Dr. Duarte's Bio and Archive
Joe Duarte, M.D.
Joe Duarte M.D. is founder and Editor in Chief of Joe-Duarte.com. Dr. Joe Duarte's Daily Market I.Q. is a premium service that provides daily intelligence, trading strategies, and technical analysis at www.joe-duarte.com. Duarte offers free analysis and news coverage at www.intelligentforecasts.com . Dr. Duarte is a board certified anesthesiologist, a registered investment advisor, and President of River Willow Capital Management. He is author of "Successful Energy Sector Investing" and "Successful Biotech Investing" (Prima/Random House). Duarte's analysis appears regularly in major outlets including CBS MarketWatch and Investor's Business Daily.