Russia and the new energy-strategic alliance

by J. Christoph Amberger

With oil prices still above $70 a barrel, Russia is living high on the hog. The country’s gross domestic product grew 6.5% from January through July -- up from 5.6% last year, according to the Russian Economy Ministry.

For July, GDP growth came in at 7.4%. Growth projections for the calendar year remain unchanged at 6.6%.
But, unlike China -- or Germany, for that matter -- economic growth is not exclusively due to exports. Exports are balanced by increasing demand on the investment and especially the consumer markets.

Domestic consumption in particular was fueled by rising personal incomes -- up 16.9% and 11.2%in June and July, respectively. In fact, imports increased by 30-34% from May to July 2006, thanks to due to the real appreciation of the ruble against other world currencies (including the greenback) and increased consumer spending.

Russia now has a current account surplus of $88.3 billion from January to July 2006. The country’s gold and foreign currency reserves have increased by $83.46 billion from January to July 2006 -- that’s over four times more than in the same period last year.

-- Almost all this growth is due to oil money: Oil revenues now account for more than 50% of the government’s total receipts, and for more than a third of the country’s total export volume. The Kremlin has been spending the money wisely... it just paid off the entire debt it owed the Club of Paris members.

In fact, Russia is currently so successful that OPEC statistics indicate the country is currently beating the pants off the Arabs when it comes to oil production. It is extracting more oil than Saudi Arabia, which would make it the No. 1 producer of oil in the world.

(According to OPEC, Russia produced 9.236 million barrels of oil -- 46,000 barrels more than Saudi Arabia.) The only fly in the ointment: Russia’s oil industry is running close to capacity, with an upside of raising production by only 2% annually until 2009.

-- There are some more sinister aspects to this development.
W. Joseph Stroupe, of the Asia Times Online, writes today: “In essence, the circle defining international energy security is now being drawn. Inside the circle are those producer and consumer states whose political and geopolitical affinity for each other is the result of no mere chance occurrence and whose energy-security interests are being strategically served and addressed on both sides of the producer/consumer equation.
“Some of the economies of the West, such as Germany, are being included within the developing circle.

Outside the circle are those economies of the West that are to be left out of the growing international energy-security arrangements currently being constructed, as alluded to above.

Interestingly, and as a profound new development, it isn’t the United States that defines the path and scope of the circle. Instead, it is Russia and its strategic partners who are defining it.”

Which is what we have been saying for a long time.