Russia and oil

my more or less accurate history

When the old Soviet Union broke up thirty years or so ago, there was a wild scramble by powerful politicians and state officials (read: KGB) to seize control of valuable state-owned assets. Among these were Russia’s large but mature and decrepit oilfields.

The new oligarchs knew nothing much about oil, but they were smart enough to hire Western oilfield services companies–Schlumberger, Halliburton and Baker Hughes are the biggest–to repair and maintain the vast hydrocarbon resources they now controlled. The result was a jump in Russia’s oil output from 6 million daily barrels to the current 10 million or so.

oilfield service sanctions

The sanctions imposed by NATO are interesting, I think. The oilfield companies are allowed to continue work on existing projects but not launch new ones. What’s new and what’s existing haven’t been clarified in public announcements. The idea, though, appears to be to allow current production to continue undisturbed, thus mitigating the potential for near-term shortages that would drive the world oil price substantially higher. We already know, for example, that a lot of Russian output is ending up in India. It may also be possible for the foreign firms to further infill drilling–something that may depend on how quickly the world can shift away from oil and/or how quickly the Middle East can, or wants to, boost its output. At some point, however–two or three years down the road?–this production, Russia’s main source of hard currency, will begin to slacken. Assuming the sanctions are still in place then, and why wouldn’t they be, Russia will begin to fade away as an oil power.

Presumably, Moscow has worked this out already.

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