Friday, August 20, 2004

China considers buying Russian oil firm

Times Business: "CHINESE official said yesterday that Beijing was interested in buying the prize asset of Yukos"

Wow, this is an interesting story.

First of all it would mean that at least part of Yukos would be being renationalized. (That is it is going to be owned by a state government and not shareholders).

From the 1980s to now, privatization has been the main trend with repect to government owned businesses. This movement began in teh US and UK and then spread around the world. This renationalization would be the process in reverse with the government buying a business owned by private shareholders.

WHat makes this even more interesting is that the government buying the Russian Oil business would not be Russia, but Chinese.

On one hand it doesn't matter who purchases the oil (ignoring incentive and other inefficiencies) since the purchase is just a vertical integration. As such, the owner should still sell the oil at the variable cost (so if XYZ country wants to buy oil from China at a price above variable cost, then they should sell it). However, I am sure Tom Clancy could write such a plan into his next global thriller in a less economically neutral manner. FOr example: China wants to control the oil for military reasons. WHICH I DO NOT THINK IS THE CASE!! More likely is that China is concerned what would happen in its oil supply would be cut off.

Partially as a result of this Clancy scenario, the London Times reports that the sale of the assets to foreigners is unlikely.


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