MenuThe Christian Science Monitor
September 8, 2015
By Cristina Maza, Staff writer
Russia – despite serious economic headwinds, and Western energy sanctions – is scrambling make sure it retains its status as a global leader in oil and gas.
The persistent collapse of oil prices has been chalked up to a game of chicken between US shale producers and the Saudi-led Organization of the Petroleum Exporting Countries. But there’s a third major producer whose response to sub-$50 oil has been to keep pumping more crude.
Russia – despite serious economic headwinds, and Western energy sanctions – is scrambling make sure it retains its status as a global leader in oil and gas.
As oil prices fall , the typical response from oil producing nations is to cut production in an effort to boost prices. But as prices tumbled – first last year, and now again this fall – , Saudi Arabia and the United States, two of the world’s largest oil producing nations, have continued to pump oil in a bid to maintain market share. Russian companies, meanwhile, are also ramping up oil output even as sliding oil prices cause its largely energy-based economy to nosedive. Russia is now pumping more oil than at any time since the fall of the Soviet Union, around 10.7 million barrels a day, according to Reuters.
The effects of low oil prices, both positive and adverse, have reverberated across the globe over the past year, impacting countries as far flung as Venezuela and Malaysia. As prices fall, countries whose main source of revenue comes from oil, such as Venezuela, are forced to increase outputs just to maintain their normal level of income, experts point out.
The same goes for Russia, but it may not be the only reason the country’s state-owned oil companies refuse to cut oil output. Unlike the Saudis, Russian authorities and businessmen aren’t as concerned with the price of oil, experts say. Instead, they’re using currency devaluation and other maneuvers to adapt to the low prices and continue business as usual. Meanwhile, Moscow is betting that new investments from the East will allow for a long-term increase in production.
“They have no sense that they are creating the problem,” says Chris Weafer, a founding partner of Micro-Advisory Ltd., a consultancy service for investors and companies looking to do business in Russia. “They see market prices as out of their control and they’ll deal with it. It’s a philosophy.”
For Russia, the real focus is on how to maximize cash flows and minimize the impact of the Western-led sanctions levied against Moscow due to its involvement in the conflict in Ukraine, experts say. As a result, Russia has been making moves to diversify its market away from Europe and court new partners in China and India.