Leaders from both countries were in Moscow, eager to court the Russian president for access to the vast oil and gas wealth of Siberia to feed their energy-ravenous industrial economies.

Their willingness to do business on the Kremlin's terms strongly suggested that Putin has won his massive gamble to alienate billionaire oligarchs like Boris Berezovsky and Mikhail Khodorkovsky and their cheering sections in the United States.

Western business analysts have repeatedly warned that Putin's drive to cripple and now dismember the biggest oil corporation in Russia, Yukos- which was created and run by Khodorkovsky- might wreck Russia's economic recovery and cause international investment to flee the country. Khodorkovsky is on trial in Moscow on charges of massive fraud and tax evasion.

It has certainly had a dampening effect. There is no doubt that in Western business terms, Yukos was the most efficiently run oil corporation in Russia. By contrast, Western analysts believe that Gazprom, Russia's natural gas producing and exporting giant, may lose more than $2 billion in revenue every year because of incompetent business and administrative practices.

But with global oil prices soaring and looking set to breach the not-so-long-ago unthinkable $50 a barrel price, Putin and his siloviki - his senior officials and advisers largely recruited from the old Soviet security services -- are having the last laugh.

With global energy prices so high and still soaring and global supplies dangerously inelastic, the world is flocking to Russia, eager for its oil and gas, on the Kremlin's terms.

China is so eager to keep purchasing Yukos oil that it even agreed last week to pick up the huge costs of importing it after top Yukos executives, eager to try and embarrass Putin said their corporation could no longer pay them.

However, Gennady Fadeyev, president of Russian Railroads, also known as RZD, said that Chinese officials agreed during the visit of Chinese Prime Minister Wen Jiabao last week to cover RZD's transport costs for exports of oil produced by Yukos.

The Russian government has hit Yukos with $7 billion in back-tax demands for 2000 and 2001 and on Sept. 20 Yukos announced it would stop supplying the state-owned Chinese National Petroleum Corp. with the 400,000 tons of crude oil it sends every month unless CNPC came up with $160 in transport tariffs and export duties per ton - a total of $64 million per month.

The move was widely seen as an attempt to embarrass Putin ahead of the Chinese prime minister's visit, but it didn't work. China is picking up the costs.

The Russians, in return, have agreed to vastly expand their export capabilities to China. Russian Railways plans to spend $1 billion over the next six years upgrading its one land-rail route to China, Fadeyev told reporters after meeting with visiting Chinese Railways Minister Liu Zhijun.

Fadeyev said RZD would spend 14 billion rubles, or $480 million, modernizing a 220-mile stretch of track from near the city of Chita in Siberia to Zabaikalsk on the Chinese border by 2008. Another 16 billion rubles, or around $540 million, will be spent laying a second parallel track on the line, he said.

The current volume of cargo shipped between Russia and China is 30 million tons a year. By 2010, we plan to double that number, Fadeyev said.

Even bigger deals may be afoot. Hong Kong press reports have suggested that China may soon invest as much as $12 billion in energy development in Siberia.

Only days before Wen's visit, Putin approved another national partner to develop the oil and gas riches of Siberia: South Korea.

As Putin met President Roh Moo-hyun at the Kremlin Sept. 21 during the South Korean leader's four-day visit, South Korean and Russian companies were signing $4 billion worth of energy contracts, most of them focused on oil. And even more colossal deals to develop Siberia were agreed upon.

The biggest single agreement was a $3 billion project to create an oil refinery and petrochemical plant in Tatarstan signed between the LG Group, South Korea's second-largest industrial cartel and Tatneft, the sixth-largest oil producer in Russia.

The eagerness of South Korea and China's largest corporations to cut deals with Moscow over energy development confounded the predictions of U.S. business analysts that the drive to dismantle Yukos would cause both Russian and international investors to flee the Russian energy sector.

It hasn't happened. Investment in the Russian energy industry did fall this year partially because of the Yukos controversy, according to official Russian figures reported Friday. The share of the fuel or energy industry dropped in the first half of 2004 to 19.6 percent of total investment compared with 23.5 percent of total investment during the first half of 2003, according to a report from the Russian Economic Development and Trade Ministry.

Investment in the fuel sector fell not only in relative terms but also in absolute ones, decreased from 157.7 billion rubles in the first half of 2003 to 151.4 billion rubles in the first half of this year, the report said.

However, the market appeared to have weathered the worst effects of the so-called Yukos factor, the report said. Players have separated Yukos from the market, it said.

And on Monday, Alexei Ulyukayev, first deputy chairman of Russia's Central Bank announced at a Moscow conference that capital outflow from Russia, which reached an alarming $4 billion in the first quarter of this year, was decreasing. It dropped a little to $3 billion in the second quarter of this year and is expected to be down to $500 million to $1 billion in September, he said.

Ulyukayev also told the conference that Russia's gold and foreign exchange reserves were expected to top $100 billion this year.

Putin is not out of the woods yet. But all signs are that he has won his colossal gamble: In his showdown with Khodorkovsky and Yukos, he was right and the U.S. pundits were wrong. With all that oil and gas in its territories, it is Russia that is calling shots an dictating the terms.

All rights reserved. Copyright 2004 by United Press International. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by United Press International. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of by United Press International.

Related Links
SpaceDaily
Search SpaceDaily
Subscribe To SpaceDaily Express