What Theories of Trade Help to Explain Russia's Position as an Oil Exporter?

1. What theories of trade help to explain Russia's position as an oil exporter?

• Natural & Acquired Advantage: 15 more reserves than Saudi Arabia

• Similarity Theory: Trade mostly with neighboring countries, former members of Soviet Union.

• Porter Diamond Theory: National competitive advantage, with favorable demand, factor conditions, related & supporting industries and strategy.

• Interventionist, merchantilism, PLC theories do not apply.

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

• OPEC makes supply uncertain

• Chinese industrialization increases demand.

• Political unrest in Venezuela and war in Iraq makes supply from competition uncertain.

3. Discuss the following statement as it applies to Russia & LUKOil.

"Regardless of the advantages a country may gain by trading, international trade will begin only if companies within that country have competitive advantages that enable them to be viable traders - and they must foresee profits in exporting and importing"

• Russia & LUKOil must maintain comparative advantage to be able to compete in world oil market. Otherwise, competitors could use FDI to take over by developing the latest technology, marketing skills and operating efficiencies.

4. In LUKoil's situation, what is the relationship between factor mobility & exports?

• Oil production process are capital-intensive and