While Vladimir Putin's third presidential term is perceived as a continuation of his political authority in the country, his petroleum policy represents a new era for Russia in particular and the world in general. This is most evident from his support for the three contracts signed between the Russian state company Rosneft and three international oil companies to invest in the Arctic. According to President Putin, investment in the Arctic oil represents “our strategic reserve for the 21st century". Russia signed through Rosneft three production-sharing agreements for oil exploration and drilling in the Arctic with America's ExxonMobil, Italy's ENI and Norway's Statoil. Putin has played an important role in ensuring the success of the negotiations over these agreements, by agreeing to give the companies involved attractive tax breaks, and a flexible royalty tax that depends on the geological nature of the oil fields in question. Putin is aware of the magnitude of the expected investments in the Arctic, which are estimated at about $ 500 billion for exploration, drilling and development, not to mention about $ 300 billion for post-production industries. These investments will give a strong boost for the Russian economy, and will also represent a big leap, yet one that is fundamentally different from when the Russian economy was opened to privatization following decades of nationalization under the Communist regime. The difference between the Russian economy opening up to private investment this time and the time before under President Yeltsin in the nineties lies in the fact that under Yeltsin, an existing and productive Russian industry was transferred from the public sector to the private sector then looted by a handful of officials who made billions overnight. The current opening-up, however, involves investments by international companies in one of the harshest regions on the planet, both in terms of climate and geography, at a time when Western-Russian relations are undergoing a crucial period. This means that the governments behind the major companies involved will push strongly in favor of these companies in the event disputes arise between them and Moscow. Indeed, the dispute over sovereignty over the Arctic among the countries adjacent to it was one of the major hurdles to reaching those agreements, not to mention the potential environmental hazards and strong opposition by civil society organizations worldwide. These agreements have opened the door for international companies to make oil investments in the Arctic and to Russian access to the reserves of this promising new area. They have also given Rosneft the opportunity to enter into joint investments with international companies in various parts of the world. For example, ExxonMobil will allow Rosneft to take part in oil exploration in fields it controls in Texas and the Gulf of Mexico, in return for having its involvement in the Arctic approved. And in a recent speech, President Putin affirmed his intention to honor these agreements and for Moscow not to attempt to change the terms later, as happened with agreements concerning Sakhalin in Siberia previously, and the ensuing dispute with Western companies and project delays. Putin said, “We will provide investors with the possibility of planning their operations over the long-term and shielding them from risks of a revision in game rules." Of course, Rosneft did not conclude these agreements easily. To be sure, the agreements were preceded by tough and protracted negotiations, including failed talks with major international companies such as France's Total or the UK's BP. For one thing, these companies were hesitant to sign huge contracts involving extensive technical risks and harsh Russian conditions at the time. This underscores Putin's role in pushing the Russian position to be more flexible to arrive at the three agreements. The Arctic is surrounded by eight countries: Russia, the United States, Canada, Norway, Denmark, Finland, Iceland and Sweden. Disputes among some of these countries took a sharp turn in recent years, and almost led to clashes. The reasons for the interest in making oil-related investments in the Arctic waters at present include rising temperatures in the Arctic region and rapid melting of the ice sheets there, allowing companies to explore and drill much more easily than in the past. Of course, environmental conservation groups have objected to these projects, given the threat oil investment in the Arctic poses to the environment. In this respect, Greenpeace expressed its shock because the Arctic environment is one of the most fragile regions in the world for oil drilling, according to the group. Nevertheless, preliminary estimates of the reserves in the Arctic are hugely lucrative, as they indicate that the Kara Sea, where ExxonMobil is poised to operate, may hold about 35.8 billion barrels of crude oil and 10.3 trillion cubic feet of natural gas. For the sake of comparison, this preliminary information indicates that there is more oil in one sea of the Arctic than there is in some OPEC member states. There are multiple dimensions for oil drilling in the Arctic. For one thing, it means, in the event large discoveries are made, investing in new areas of Russia other than Siberia. It also means increasing Russia's current productive capacity of about 10.3 million barrels per day, in addition to the oil industry entering a new era, since the cost of extracting petroleum in the Arctic will be very high, which means that high prices for crude oil are anticipated. This new era of petroleum also means a very significant development for the technology of deep sea drilling, which will pave the way for other discoveries in other sea waters. All in all, these developments will mean, in case large and commercially viable quantities of oil are found, that the era of petroleum and fossil fuels will continue for decades to come, but with a leading role for Russia in the global oil industry. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
