Yukos Action, Chinese Demand Push Oil Over $43
A Barrel
The Russian government has ordered Yukos to stop overseas
shipments of oil. Combined with strong Chinese demand,
this has pushed oil over US$43 a barrel for the first
time.
Today, Russian bailiffs ordered Yukos to stop all overseas
oil shipments because of legal action for US$3.4 billion
which are claimed in back taxes. This move immediately
caused oil prices to spike on international spot markets.
Buyers normally buy on spot markets because of flucutations
in demand which are outside the scope of their long-term
contracts.
Strong domestic demand from China
has forced it become a major buyer on international spot
markets. Institutional investors
from the West, seeing continued strong demand from China,
have invested in the major Chinese oil companies, all
of which are state-owned.
In an effort to provide a market for more stable oil
prices, China will open an oil
futures contracts in Shanghai in August.
China had been in extensive negotiations with Yukos
to construct a trans-Siberian oil pipeline to transport
oil to northern China before Russian president Putin ordered
the arrest of the former CEO of the company, Mikhail Khodorkovsky.
He was widely believed to have been arrested because he
continued to fund political opponents of Putin, in spite
of warnings to cease and desist. The official Russian
government explanation is that Yukos was guilty of tax
evasion.
Because of the political importance of the case, it is
virtually impossible to separate fact from fiction, but
it would make sense that Putin is bent on cutting back
the power of the "new oligarchs" who came to
power in Russia in the infamous "shares for loans"
period. During this period, Russian state-owned assets
were sold at far below replacement value, their assets
stripped, and the money deposited in overseas accounts.
Some of the new oligarchs, with their new money, moved
overseas, while a few, like Khodorkovsky, dabbled in Russian
domestic politics.
Western investors in Yukos had hoped that Yukos would
not be affected by the arrest, and would simply be fined
for tax evasion. Now, it seems apparent that the Russian
government is intent on the breakup of Yukos.
For the past year, a major aspect of China's foreign
policy has been focused on securing reliable overseas
oil contracts. Like the US, the world's greatest oil consumer,
China depends on oil imports to satisfy its domestic needs.
This is the first time in China's history where it has
depended on overseas sources for a basic commodity. Already,
the search for oil is shaping China's foreign policy.
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