'Falling oil price due to OPEC policy has dramatic consequences for Russia'
Author : BNR Web Editors
The drop in the oil price due to the higher production by the OPEC countries is having a dramatic effect on Russia, says Steven Brakman, international economist at the University of Groningen. 'Half of Russian exports consist of oil, the price is falling and government finances are also dependent on oil revenues for at least 40 percent. So the falling oil price is a disaster for Russia.'


Also according to Lucia van Geuns, energy expert at the Hague Centre for Strategic Studies (HCSS), the low oil price is damaging the Russian economy, because the country depends on oil for a very large part of its income. The Ural oil is anyway cheaper than the Brent, which we talk about all the time. 'The Ural is now around 55 dollars, which is even lower than the price cap that the G7 set two years ago, to regulate the price of oil from Russia to some extent.'

'The $65 also applies to American oil production, which cannot survive if the price is below that amount'
Lucia van Geuns. HCSS

With a substantial increase in production, OPEC+ has changed course considerably, after oil production had been kept under control in recent years. However, production was actually already too high last year, because a number of OPEC countries did not adhere to the agreed quotas, says Van Geuns. 'And now that it has been decided to produce more oil, the price could possibly fall even further.'

Although that does depend heavily on the development of demand in the coming period. And that is – partly due to the unpredictable world economy and the entire geopolitical playing field – very difficult to predict, says Van Geuns. 'A very important factor with regard to oil demand is the extent to which the Chinese economy stagnates. OPEC hopes that a number of members will adhere more to the agreements. But Saudi Arabia actually wants to produce significantly more oil itself now.'

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The Saudis want to compensate for the oil they have kept out of the market for a number of years, says Van Geuns. 'The supply is largely regulated by OPEC+, with almost 40 percent of the market. The 65 dollars per barrel that currently applies is ultimately a fairly arbitrary number, indeed a direct result of supply and demand, says Brakman. 'That 65 dollars also applies to American oil production, which cannot operate if the price is below that amount.'