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Russia Cashes In on Oil Supply Anxiety

Whatever the eventual outcome of the Arab world’s social upheaval, there is a clear economic winner so far: Vladimir V.Putin.

Russia, which pumps more oil than Saudi Arabia, is reaping a windfall from the steep rise in global energy prices resulting from instability in oil regions of the Middle East and North Africa.

Riding the high oil prices, the Russian ruble has risen faster against the dollar this year than any other currency, which is helpful because it will curb consumer inflation during an election year.

Russian stocks are buoyant, too: the Micex index closed last week at 1,781, up nearly 6 percent since the beginning of the year. (Monday was a holiday in Russia.)

But the Russians could not step in to offset any potential big drop in global production, because Russia does not have any oil wells standing idle that would allow it to increase production. Right now Russia is pumping oil at its top capacity.

But at last week’s closing of $114, the price of each of those barrels of Ural crude, the country’s main export blend, has risen 24 percent since the beginning of the year.

Last week, the prime minister, Mr.Putin, sat down for a meeting with Russia’s finance minister, Aleksei L.Kudrin, which was nationally televized on state news channels for the public’s enlightenment as the two discussed, just short of gloating, the benefits to Russia of a global oil panic.

“Mr.Kudrin, budget revenues have become considerable,” Mr.Putin said matter-of-factly.

Mr.Kudrin agreed, noting that if prices hold Russia will be able to resume contributions to its sovereign wealth funds for the first time since the summer of 2008, when the global recession began.

One of those sovereign investment vehicles, the Reserve Fund, could reach $50 billion by the end of the year, Mr.Kudrin reported.

Just a few months ago Russian officials planning the 2011 budget had anticipated the fund would be depleted.

“Good,” Mr.Putin responded to Mr.Kudrin’s account, nodding with satisfaction.

Russia, of course, does not have to look back farther than 2008 to see that a spike in the price of oil can be just that — followed by a dizzying drop. But for now, Russian energy is in favor.

Russia’s perceived stability was a reason the French energy giant Total cited last week in agreeing to buy about 12 percent of an independent natural gas producer in Russia, Novatek, and join a liquefied natural gas project in the Russian Arctic.

“The upheavals taking place in a number of the oil- and gas-producing countries now send a signal to investors to come to Russia,” Total’s chief executive, Christophe de Margerie, said in a meeting with President Dmitri A.Medvedev announcing the deal.

Mr.Margerie said his company was committing about $4 billion to the venture. “Russia offers a much safer environment for investment,” he said.

Oil experts say that because global production capacity for oil is still far larger than world demand, the run-up in prices is being fueled by fear more than by reality.

The concern is that the violence in Libya could spread to other member states of the Organization for the Petroleum Exporting Countries, which are primarily Arab nations.

Russia is not only outside OPEC, and thus free from the cartel’s production restraints, but also, with its formidable secret police apparatus and a population bulge among the elderly rather than the young, is seen as less vulnerable to an outbreak of social unrest.

Russia has long jockeyed against Saudi Arabia, a member of OPEC, to be the world’s top oil-producing nation.

Although the Saudis have more production capacity and vastly more reserves, Russia is pumping more oil.

And if oil and natural gas are considered together, Russia is the largest energy-exporting nation.

Which country is in first place for oil at any given moment depends on how the Saudis wield their swing production capacity, the cushion of unused wells and pipelines the Saudis can turn on to tamp down global prices.

As the biggest OPEC member, Saudi Arabia is the cartel’s enforcer and enabler, with the power to influence global prices or to moderate global disruptions by how much of its production capacity it chooses to put to work.

If the Saudis open the valves during periods of instability, Russia falls into second place as a producer — but still makes a healthy profit off higher prices.

Russia has little incentive to invest in spare capacity — in part because being outside the OPEC cartel gives it less direct ability to influence prices through the ebb and flow of production.

If anything, a large idle capacity by Russia would work against its financial interests — by acting as market insurance, and thus holding prices down — during periods of instability in the Middle East.

Russian officials also say that spare capacity is too hard to maintain in their far northern country. Most of its current production comes from wells in Siberia that would freeze solid in the permafrost if not kept running.

And the Russians will probably argue the new fields they plan to open in Arctic waters will be so expensive to drill that it would be unwise to later shut them down.

“They are producing flat-out on a permanent basis,” Didier Houssin, the director of energy markets and security at the International Energy Agency in Paris, said via telephone.

In the longer term for Russia, policies that encourage or discourage oil field investment are the bigger determinant of how much oil the country can provide to global markets.

The energy agency forecasts that Russian energy output will remain about stable for five years, but will require increasing investments as the main oil provinces in western Siberia, having peaked years ago, continue to decline.

In this respect, Middle East instability could bring longer-term benefits to Moscow than the current oil price spike, if it redirects even more of the Western oil industry’s investment to Siberia and the Russian Arctic shelf.

The British oil giant BP cited Russia’s relative stability compared with OPEC regions, when BP in January announced a $7.8 billion deal to invest in the state-owned Russian oil company Rosneft and jointly search for oil in the Arctic.

Later that month, Exxon Mobil , the biggest American oil company, signed a deal with Rosneft to explore offshore in the Black Sea.

Unrest in North Africa is also strengthening Russia’s bargaining position with Europe on natural gas exports and pipeline politics — although Russian officials have used delicate phrasing to make this point.

Aleksei B.Miller, the chief executive of Gazprom, in a visit to European capitals late last month, suggested that Europeans reconsider their opposition to new Russian pipeline proposals, in light of the “external situation” in North Africa, a region that competes with Russia to export pipeline gas to Europe.

Russia is building a pipeline under the Baltic Sea directly to Germany, called Nord Stream, and has proposed another similar pipeline under the Black Sea to Bulgaria.

It says these pipes will reduce the risk of traveling overland through central European countries that are unfriendly to Russia, but some European governments have balked at the high cost and political subtexts of these projects.

When Mr. Putin visited Brussels last month, he had a new argument for these pipes, which he has championed for years. “I am confident that the real long-term interests of the European economy lie with our resources,” he said at a news conference. “Nothing matters more than stability.”

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