Russian Petrostate Meltdown?

August 31, 2014, 13:43

It was exactly two years ago when the Russian deputy Prime Minister Igor Shuvalov, in an interview for The Wall Street Journal, stated that Russia was to face another crisis, similar to the one that happened back in 2008. Oil prices dropped, the budget expenditures were diminished, and value of the ruble was decreased. Nowadays Russia is to deal with the Western sanctions, Brent barrel price adjustment and shale gas revolution – in the light of these factors Moscow may have to face a challenge which will be far more serious – a bankruptcy of the whole development model.

Wars break out, oil prices drop...

Despite the ongoing conflicts in Iraq or Ukraine and the Ebola outbreak in the Western Africa, oil prices do not go up. Last week the Brent barrel price was starting to reach the psychological barrier of $100. On the other hand, the Urals barrel, which is the basis for the Russian export, costs less than $100. Of course these are not mean annual values, but even those levels are far from being satisfactory for the Russians (average annual Brent price is 108.89 US dollars per barrel).

OPEC less significant, USA shale revolution on the rise

OPEC countries are systematically becoming less and less significant when it comes to the crude oil exploitation. The reason for such state of affairs is simple – countries that are not the members of the cartel increase their contribution. According to the International Energy Agency (IEA), that increase is currently significant in case of the USA, Canada, Brazil, Malaysia, Norway and Columbia. Especially changes that occur in the USA have a great impact on the ongoing transformation of the world oil market. It is the shale revolution that is so significant – in the first half-year of 2014 the USA have struck down Russia and Saudi Arabia from the leading positions, taking them over. Now the United States is the country, which has become the world-leader in creating the „black gold”.

Washington may rearrange the global oil price-list

Increasing volume of unconventional oil in the USA is the main reason why the level of the US „black gold” reserves is so impressive (last week value: 367.02 millions of barrels!). These reserves may be  sold abroad. In the beginning of August, Singaporean tanker, BW Zambesi, for the first time since over 40 years, has exported a load of American crude oil. That may also mean that the export limits that have been introduced by the White House back in the 1970’s may be no longer valid in the near future.

Russia is under pressure. Oil exploitation is decreasing

It is bad news for the Kremlin, since the Brent adjustment is not the only problem. The local mining is also decreasing. IEA reports evidence that it is to be caused by the disappearing resources of the Western Siberia. Additionally, mining in case of the new oil deposits is being significantly delayed.

Expansion – an answer to bankruptcy of the development model

In the light of the Western sanctions, Brent barrel price adjustment and the shale revolution it seems that Moscow’s development model is to fall into bankruptcy. Vision of „Petrostate” may be crumbling, since the top-down modernization by Medvedev had not been successful. Ant it may also be the reason for the more and more aggressive actions carried out by Moscow, including, in certain aspects, the Ukraine war.

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