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European-American Topics - Business- Romania's oil

Romania’s Oil—A path to modernization or corruption
By Jacek Cameron-Rulkowski
Posted October 2005
Romania is not only a country that many associate with Transylvania and its famous inhabitant, Count Dracula. Romania was one of the first countries to produce oil. Already in the second half of the 19th century Romania belonged to the vanguard of oil producers. In 1857 this Southern European country produced 275 tons of oil.

There are only two other European countries that have more oil reserves than Romania: Norway and Great Britain (50 and 26 percent, respectively, of all European oil reserves). The oil in Norway and Great Britain is sea-based. Romania’s 12 percent of the European oil reserves, however, is land-based and, thus, easier to extract.

With such a long history of oil production, it should not surprise anybody to discover that there is an oil industry in Romania. Romania’s ten refineries theoretically are capable of producing 504,000 barrels of oil per day. Actual production figures, however, are far lower. Due to a lack of financial resources, all of these refineries are in need of major technological upgrades. The oil production figures speak for themselves: in 2002 Romania produced roughly 58 percent less oil than in 1976.

There is reason to believe that Romanian oil production could be increased very soon. The current privatization wave may provide the necessary resources. It is no secret that global oil companies such as Halliburton, Shell, Total & Amco, Russian Gazprom, and Lukoil are interested observers of and, in some cases, participants in the process. At the same time, many political observers agree that the Romanian privatization process, especially with respect to the privatization of the oil industry, is not exactly a picture book example of transparency. In 2004, Transparency International, an international watchdog group based in Berlin, called Romania a country with “rampant corruption.”

There is an associated risk with that situation-assessment: multinational oil conglomerates may see the present levels of corruption in the public sector and lack of political stability as major obstacles to their investment plans. It remains to be seen how Romania’s decision makers will address these internal challenges.

At this time, it is difficult to say whether or not Romania will fully develop its oil producing potential. On the one hand, oil production can be increased and there are plans to build the 760-mile long Southeast European Line (SEEL) pipeline which would connect the Romanian Black Sea Port of Constanta with the Croatian Port in Omisalj. By 2013, the SEEL pipeline theoretically could be expanded up to Trieste in Italy. On the other hand, whether or not there will be enough demand for additional Romanian oil and for a new pipeline are open questions. For example, Hungary’s demand for oil has fallen by 13 percent since 1992. We simply do not know how this region of Europe will develop.

If we assume that the hunger for oil in Southern Europe will increase in the near future, Romania’s oil reserves and their utilization may rapidly accelerate the modernization of Romanian society and raise its citizens’ standard of living to levels associated with Western European countries. On the flip side, if mishandled, increased production of Romanian oil could further cement corruption and political cronyism.



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