The decline of Russia's oil industry

Volatility in the oil market and misunderstandings with Saudi Arabia within OPEC+, the organisation that brings together the raw material producing countries and Russia, are not the only problems facing the oil sector in the country led by Vladimir Putin. A recent report by the US consulting firm Stratfor predicts a bleak future for this industry: "The depletion of oil fields can have a huge political and economic impact on a country that is highly dependent on oil," the document states.  

The oil fields that are currently active in Russia are starting to run out, says the American consultancy firm. Although the country has more reserves, they are difficult to access and extraction prices are likely to rise. Moreover, Stratfor analysts see it as very difficult for Moscow to reduce its dependence on oil revenues.  

The Kremlin has announced that it must take measures to overcome the current oil crisis, which has brought barrel prices to levels of 20 years ago. "Russia has enough reserves to survive in conditions of extremely low oil prices, but it cannot be led by so-called populists to spend its funds," Kremlin spokesman Dmitri Peskov told the Efe news agency.

"Yes, Russia can, we have a large reserve of strength, the so-called safety cushion, but we must be very careful in using these reserves," the official said in an interview with the Rossiya 1 television channel, referring to the National Welfare Fund (NWF). "We cannot give in to some populist statements of the kind, let's distribute everything to everyone, let's flood the economy with money, and others like that," he said. 

The day before, Alexei Kudrin, the director of the Russian Court of Accounts, said in the same newspaper that the Russian government should not limit itself to taking resources from the NWF, the "piggy bank" created from the income of oil exports when the price of oil was high. 

According to the official, the FBN could contribute even more than half of its funds to the solution of the crisis, something in which he does not agree with the government, which prefers a more cautious spending of these resources. At the beginning of April, this fund accumulated 12.85 trillion rubles (about $165.384 billion), equivalent to 11.3% of the country's gross domestic product (GDP). 

For his part, Russian Finance Minister Anton Siluanov explained this Sunday to the same media that the government will limit itself to covering the budget deficit caused by the biggest collapse in oil prices in history with only 2 trillion rubles (26.6 billion dollars) of the FBN. 

Meanwhile, Russian Energy Minister Alexandr Novak urged calm when he assured the publication on Monday that he considered the fall in crude prices to be temporary and that there would be an upturn in prices during the second half of 2020. 

The important thing, according to the head of Energy, is to avoid "the collapse of the warehouses", because this would lead to a "total collapse". Nóvak has described the price falls of between 20 and 30% as abnormal and pointed out that most experts agree that there is currently a peak fall in demand, "which will be restored along with the markets in any case". Furthermore, he dismissed the "negative prices" of WTI crude oil, as these were "future" sales, which "have nothing to do with the real oil market". 

Russia's economy is facing losses of about 100 billion rubles a day (1.241 billion euros) as a result of the coronavirus pandemic, according to estimates presented by Maxim Reshétnikov, the Minister of Economic Development. According to this political leader, Russia's budget deficit in 2020 could rise to between 4.5% and 5% and this amount will have to be compensated by accumulated oil reserves and loans. 

In spite of this, he assured, the government will fulfil all its social commitments to the population, regardless of the effects caused internationally by the pandemic, and in particular the collapse in oil prices as a result of low international demand. 

In this regard, he has insisted that "if there is one thing the population of the country can be sure of, it is that all social payments, all commitments of the State will be fulfilled regardless of the price of oil". "Our reserves are comparable to the average of European countries," he said. 

The Russian economy has been doubly hit by the pandemic, since in addition to the restrictions on mobility and the cessation of activities of a large part of the productive and service sectors imposed by the epidemic situation, the price of crude oil - one of the main sources of income - has fallen to record levels. 

This Friday, the Central Bank of Russia (BCR) reduced the interest rate by half a point, to 5.5%, due to the negative impact of the coronavirus pandemic on economic activity, and predicted a drop of up to 6% of the GDP this year due to the COVID-19 pandemic.