Friday, August 29, 2008


This is not a decrease in supply, at worst it is a re-routing to more favorable jurisdictions. Russia is not the swing producer (that honor falls to the Saudis) of oil and is prodding for weakness. The oil is transferred to other places, wherein those buyers could purchase oil at the world price and sell on to the west for modest profit.

This assumes that Russia will keep production level, which they must or risk losing market share to OPEC.

Interesting to note the combination of political, economic, and military means being used...and the attendent ends.

Russia may cut off oil flow to the West

By Ambrose Evans-Pritchard
Last Updated: 9:26pm BST 28/08/2008

Fears are mounting that Russia may restrict oil deliveries to Western
Europe over coming days, in response to the threat of EU sanctions and
Nato naval actions in the Black Sea.

Any such move would be a dramatic escalation of the Georgia crisis and
play havoc with the oil markets.

Reports have begun to circulate in Moscow that Russian oil companies
are under orders from the Kremlin to prepare for a supply cut to
Germany and Poland through the Druzhba (Friendship) pipeline. It is
believed that executives from lead-producer LUKoil have been put on
weekend alert.

"They have been told to be ready to cut off supplies as soon as
Monday," claimed a high-level business source, speaking to The Daily
Telegraph. Any move would be timed to coincide with an emergency EU
summit in Brussels, where possible sanctions against Russia are on the

Any evidence that the Kremlin is planning to use the oil weapon to
intimidate the West could inflame global energy markets. US crude
prices jumped to $119 a barrel yesterday on reports of hurricane
warnings in the Gulf of Mexico, before falling back slightly.

advertisementGlobal supplies remain tight despite the economic
downturn engulfing North America, Europe and Japan. A supply cut at
this delicate juncture could drive crude prices much higher, possibly
to record levels of $150 or even $200 a barrel.

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