Interruption of oil production for a couple of days, even weeks is not good for the world markets, but they can definitely handle that. The more crucial issue here is would Yukos be able to produce oil at the same level after oil wells were idle for a period of time?
Also, one needs to understand the Russian psyche. Russians get compensated in two ways: in rubbles and in “hope” (though dollars are preferred). After the collapse of the Soviet Union, hope was the currency of choice for the Russian government; it has experienced such huge budgetary deficits that it delayed paying workers for six months or longer. This currency (not paid on time) is not familiar to western countries where inflation is running in very low single digits. Hope runs deep in Russia. At that time (in the early 90s), inflation was running 20-30% a year. Imagine getting paid six months or a year later and being able to buy a third less with the money than you could when you earned it.
Though Yukos’ employees under current management have not received “hope” compensation for awhile, they will take it since their options are limited. So even with the funds frozen, it is unlikely that the oil wells will stop producing oil.
However, this is where the “positive” story ends. This scandal will have a long-lasting impact on Russian oil production. It is very likely that this scandal will scare foreign investors from Russia. If I was an executive with Exxon, BP Amoco or Royal Dutch, I would think twice about committing any new capital to Russia or I would demand a rate of return that would factor in a significantly higher political risk.
So the foreign capital that is much needed to develop oil (especially pipelines) infrastructure, will not be arriving anytime soon. In my opinion, we will not see an increase in oil production from Russia, thus current world supply/demand imbalance may remain where it is.
Copyright TheStreet.com 2004