Russia Tells OPEC To Take A Hike

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It must have been quite a sight. The former KGB agents who run Russia sitting across from OPEC billionaires in Armani suits. The Russian still buy their suits off the rack.

The cartel had come to Moscow to tell the heads of the huge oil exporters that supplies are too great and this has sent the price of crude into a flat spin. The Russians almost certainly had figured that out, so OPEC probably had another reason for the trip.

If OPEC tightens supply, and it will, the plan is to cut production enough to bring prices back up. The countries in the Middle East need the cash. They only have one option.

From all reports, the Russians were not listening. That must have been disappointing for their visitors. If one or two producers hold out, the chopping of output may not work terribly well. But, for Russia oil is not just a way to make money. It is a strategic weapon, a hole card, an ace.

Russia has not had something the West wants, except for Faberge eggs, in over a decade. With its army moving into Georgia from time-to-time and conducting field operations with the Venezuelan military, Russia can balance US concerns with the promise or threat that crude may not be abundant.

The US may call the bluff. Russian may get a little revenge by holding back oil. It is a large enough supplier so that it could move prices up or down a few dollars.

Crude has dropped from $147 a barrel to $70. OPEC can move that up. So can Russia. When American starts to see the end of it recession, cheap oil could be a critical element in recovery. High crude prices could also cap the speed at which things improve. Russia may not be able to change US policy, but it could make life painful.

Douglas A. McIntyre