Russia's Declining Fortunes

After enjoying years of what was colloquially known as “Putin’s Boom,” it appears that Russia’s long success, based on oil and gas production, could be in for a long period of hibernation. Russian oil output is now declining for the first time in a decade. Russia, in response to the havoc that is being played with its economy due to the one-two punch of the global credit crisis and falling oil prices, has recently engaged in high level meetings with OPEC to submit plans of cooperation to put a floor under the steep price decline. Russia, over the years, has had an on-again-off-again relationship with OPEC. with the primary benefit of OPEC consisting of being outside of it, otherwise known as the “Free Rider” principle. Although being a free rider is not without danger. Russia’s main contender for the spot of number one oil producer, Saudi Arabia, has been known to punish free riders, as it was widely alleged to have done to the Soviet Union in 1986 when it rapidly expanded oil production and precipitated an international price collapse.

It remains to be seen what agreement Russia will come to with its erstwhile comrades in oil, but it may be that Russia does not have as much administrative control over its oil production as some believe. Ultimately, Russian production appears poised to fall, if only by the financial collapse of some of its Siberian operators due to the credit crunch and the natural peaking of Russia’s aging fields.

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