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Feature Story November 29, 2001
 
Crude: The Motherland Arises
By Matt Taibbi Browse author
 
 
Ali Naimi speaking to reporters

Naimi was given «the biggest 'Fuck You' you can imagine» by Kasyanov

From the very first moments after the attack, journalists agreed: September 11 would be remembered as "the day that changed everything."

Last week, there was an event that passed almost without notice around the world. But November 23, 2001 might very well end up being remembered, like September 11, as another day that changed everything. That was the day that Russia jumped into the ring for a fight with the Organization of Petroleum Exporting Countries (OPEC), setting in motion a chain of events which should radically alter the landscape of the international economy for a long time to come.

Falling oil prices (to $19 per barrel, down from the mid-twenties last year) had prompted OPEC, a mostly Arab cartel of oil-producing states that is responsible for some 40% of the world's petroleum output, to announce plans to cut production by 1.5 million barrels a day. In return, OPEC asked the major non-independent producers -- Mexico, Norway and Russia -- to cut production by 500,000 barrels a day.

OPEC had every reason to expect that the other nations would go along with their request. For one thing, they always had: since the early seventies, OPEC has more or less dominated the decision-making process surrounding the pricing of oil, and non-member states have tended to cooperate with such requests for production cuts.

In OPEC's favor here was the truism that all oil-producing states will always be equally anxious to keep prices high. On the other hand, OPEC would never cut production to the point where it might suffer serious losses due to reduced volume. These two factors have combined to create a fairly stable equilibrium in prices for almost thirty years, and allowed OPEC to maintain its influence on the world economy despite its relative political isolation -- most of its members are non-Western second world countries.

Mexico and Norway immediately complied with OPEC's production cut plan last month, pledging cuts of 100,000 and 200,000 barrels a day, respectively. OPEC expected Russia to pledge a cut of 150,000-200,000 barrels a day. But Russia hesitated, announcing no cuts at all.

In a panic, Saudi Oil Minister Ali Naimi flew to Moscow to meet with Prime Minister Mikhail Kasyanov to talk things over. In what one Moscow-based investment banker called "the biggest 'Fuck You' you can possibly imagine," Kasyanov in that meeting told Naimi that Russia would agree to a cut of 30,000 barrels a day.

This amount was not only more than six times less than what OPEC wanted, it was even less than what Russia usually cut anyway in exports in the winter to safeguard against heating fuel shortages at home.

"Telling Naimi that they would 'go along' with a 30,000 barrel cut, after Naimi had come all this way to plead his case, was worse than if he'd said they weren't going to make a cut at all," one industry observer said. "It was an insult, plain and simple."

He added that when news of Kasyanov's brush-off of Naimi reached his company, all the Russian traders in the office cheered. "They thought it was so cool," he said.

When all the other oil-producing nations immediately denounced Russia's move, the government briefly indicated that it might reconsider its position. But on November 23, after a meeting with the heads of Russia's major oil companies, the government slapped the Arab world in the face again, announcing that it was ready to "compromise" by increasing the size of its production cut -- to a laughable 50,000 barrels a day.

Russia's decision may eventually topple the government of Saudi Arabia and other OPEC states. It dramatically altered the balance of world energy power in favor of Russia and the West over the Gulf states. And it put the future of OPEC, the world's most powerful commodities cartel, in serious jeopardy.


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