LUKoil was one of several firms created in 1991 out of Russia’s state-owned petroleum monopoly. While both Russia and LUKoil must export to meet their economic objectives, political relations within and outside of Russia could impair LUKoil’s future ability to export. Thus, foreign investment and ties to Western oil companies are very important to the firm’s ultimate success. Controlling 19 percent of Russia’s oil production and refining capacity and employing more than 120,000 people in its operations worldwide, LUKoil has become Russia’s largest oil company. It is also the first Russian oil company to integrate from “oil wells to filling stations.” High market prices have enabled LUKoil to amass sufficient capital to make substantial foreign investments. While much of its FDI has been directed to nearby countries, LUKoil has also acquired 100 percent of Getty Petroleum in the United States, as well as 800 U.S. stations from ConocoPhillips. Forward integration into filling stations will guarantee LUKoil market access and enable the company to sell its crude oil during times of global oversupply. Further, LUKoil sees its foreign acquisitions as a means of gaining experienced personnel, technology, and competitive know-how to help it compete more efficiently and effectively both at home and abroad.
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...
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