Dubai Rescue for Yukos?

8 August 2004

The Times (UK). A consortium of Dubai-based investors has emerged as the mystery backer of a $10 billion offer to save Yukos, the troubled Russian oil giant.

Members of Dubai’s ruling Maktoum family are believed to have joined a bid fronted by Konstantin Kagalovsky, a former associate of Mikhail Khodorkovsky, Yukos’s largest shareholder.

It is as yet unclear whether Putin has given any thought to the offer, despite Yukos’s increasingly dire situation.

Interesting development, but I doubt that anything will come of it.

The Yukos affair has taken over as one of the primary factors pushing the price of oil higher based on the fear that Yukos’ production will come out of the market. Some quick facts:

• In 2003, Yukos accounted for 19.2% of total Russian crude oil output, and for 27.2% of the increase in Russian production from 2002 to 2003.

• In 2003, Yukos averaged 1.62 million barrels per day. During the first quarter of 2004, the company pushed that up to 1.7 million barrels per day, an increase of 5%

Losing a significant portion of that capacity from the global supply would definitely create an immediate crisis; hence the consistent rise in oil prices. On top of that, there is still the volatility of Iraq, potential terror in Saudi Arabia, the African situations, and Venezuela.

All of these instabilities, serious as they are, are political and thus resolvable (at least in theory). Look at the effect they have on pricing. Now consider when a shortage comes that is NOT resolvable, i.e., peaking.