Russia Won’t Cut Output Despite Drop in Oil Prices

Russian officials said Wednesday that the worldwide drop in oil prices threatens to impede the country’s fragile economic recovery by cheapening one of its major exports, but they will not cut oil production in an attempt to drive prices back up.

“We suffer greatly from the drop in oil prices,” acting Deputy Prime Minister Boris Y. Nemtsov told reporters at the close of a meeting of energy ministers of eight major industrialized nations here to discuss international cooperation on energy issues.

An emergency tax break aimed at bailing out Russia’s oil industry took effect Wednesday.

A number of oil-producing nations, including OPEC members such as Saudi Arabia and non-OPEC members such as Norway and Mexico, have agreed in recent days to reduce production, helping prices to rebound somewhat.

But Russia is so dependent on the cash it receives from oil exports that it says it cannot afford to cut back--even if it is losing money at current prices. And officials say their oil equipment is so antiquated that they could not restart 30% of the country’s wells if they were to shut them down.

“Russia is not a member of OPEC and is not bound by oil production quotas,” Nemtsov said. “We do not want to be bound by such obligations. We are interested in the development of the Russian economy and the Russian fuel and energy sector.”

Because of the Asian economic crisis and an unusually mild winter, an unexpected worldwide surplus of oil has spurred a plunge in oil prices in the past few months. The drop has hit Russia especially hard because oil is such a key export.

Answering pleas from the oil industry, the Russian government announced last week that it will cut its pipeline tariffs by half, saving oil companies at least $37 million. Nemtsov said the tax break will be in effect for the second quarter of the year, but analysts questioned whether Russia will be able to roll back the tax cut once prices improve.

At Wednesday’s meeting, energy officials from the United States, Russia, Britain, Japan, Germany, France, Canada and Italy agreed on a communique that called for opening energy markets worldwide and encouraging investment by creating fair laws and taxes.

The ministers also agreed that safety of nuclear power plants is a high priority. After the meeting, U.S. Energy Secretary Federico Pena said the United States had expressed concern to Russia about the unsafe condition of older reactors still in use, particularly at the nuclear plant in Kursk, about 250 miles south of Moscow.

Pena also said the United States had agreed to assist Russia in developing new industries and businesses in 10 formerly closed cities where nuclear weapons were designed and made.

“The idea is to form incubator companies where the scientists can do regular work as businesspeople, diversifying their economy,” Pena said. “These are brilliant people, and they’ve got tremendous talents.”

In other discussions, U.S. and Russian officials agreed that the decision on where to build pipelines to transport oil from the Caspian Sea should be made for economic, not political, reasons.

Pena said the United States favors multiple routes through different countries, reducing security threats in the region and allowing more nations to share in the wealth. The United States still adamantly opposes a pipeline route through Iran, he said, but the decision will be made by oil companies, not the U.S. government.

“The positions have drawn substantially closer in the past few months,” Nemtsov told reporters. “The Russian and American sides recognize that different routings of Caspian oil are possible and the criterion for choosing priority routes should only be economics.”