Lukoil: Russia's Largest Oil Company

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1. What theories of trade help to explain Russia’s position as an oil exporter? Which ones do not, and why?

Both the theories of absolute and competitive advantage help to explain Russia’s position as an oil exporter.  Prices in the global oil market are driven by the laws of supply and demand.  Given the fact that Russia now has 15 more proven reserves than Saudi Arabia and its oil companies have become major global competitors, the country enjoys both natural and acquired advantages with respect to oil.  Thus, factor proportions theory is applicable.  The fact that a preponderance of its foreign expansion has been to countries of the former Soviet Union supports the country similarity theory.  The Porter Diamond of national competitive advantage also helps to explain Russia’s position as an oil exporter.  Global demand conditions are favorable; and Russian oil companies are making significant strides in the areas of factors conditions, related and supporting industries, and firm strategy, structure, and rivalry.  Neither the interventionist theory of mercantilism nor the theories of country size apply.  Further, product life cycle theory does not apply because petroleum is not an appropriate type of product for that model.


2. How do global political and economic conditions affect world markets and prices of oil?

Global political and economic conditions affect world markets and prices because of their real and perceived effects on global supply. In spite of their general upward trend, oil prices have fluctuated widely in response to events during the twenty-first century.  OPEC’s supply quotas, general economic uncertainty, China’s economic expansion, political unrest in Venezuela, and the war in Iraq have all contributed to the favorable market conditions that have led to record-setting prices and profits in the global oil industry.

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