Amidst the escalating oil prices in the international market and the increasing tensions in the Middle East, the importance of Russian oil has grown significantly. It has the world’s largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. It has got a fifth of the world’s known reserves of natural gas and 75 billion barrels of oil; around 7% of total world reserves. In the wake of 9/11 and the subsequent terror threats, the US is considering Russian oil as a potential buffer so as to minimize its dependence on Middle Eastern oil. Moreover, Russia has the potential to take on the oil cartel of OPEC and shift the global oil supply away from the Middle East and Persian Gulf. Against this backdrop, could Russia be poised to emerge as the energy czar in the world energy markets in the days to come? s say the answer is yes; but not in the near future.
In the past, especially during the 1990s, the country’s oil industry slumped badly. During the first half of the 1990s, as the economy was undergoing a recession, domestic demand for oil fell more than 40%, causing a glut in the domestic market. There were hardly any capacity additions and there was hardly any investment on oil infrastructure to boost further oil exports. Accordingly, between 1988 and 1998, oil production fell by almost half, from 11 million to around 6 million barrels a day (mbd). In the process, the uncertain business climate impacted badly and the International investors who were exploring the Russian oil industry stayed away.
However, Russia’s financial crisis in 1998, followed by the devaluation of the ruble and successive rise in oil prices revitalized the domestic oil industry. On the one hand, the devaluation drastically lowered input costs for the domestic players; but on the other, higher oil prices boosted revenues even without new investments or production increase. In the meantime, domestic oil majors boosted production and expanded their international reach. Slowly and steadily, Russia has become a real international energy player in the recent past after completing new export pipelines. It even opened, and is operating, a new oil terminal on the Gulf of Finland. Strategically, Russia tied-up with the EU on long-term energy cooperation, which would increase oil exports to its neighbor. Accordingly, the EU is one of the biggest customers of Russia’s total oil exports. In the very recent past, it even came to an agreement for energy trade with energy hungry China. |
