ASSESSMENTS

The Golden Age of Russian Oil Nears an End

Apr 16, 2020 | 10:00 GMT

A pumpjack outside the Russian city of Surgut.

A pumpjack outside the Russian city of Surgut. The Russian economy has long relied on revenue garnered from its conventional oil fields.

(Alexei Andronov\TASS via Getty Images)

Highlights

  • In the next 10-20 years, Russian oil will become more expensive as extraction from less accessible basins becomes necessary to maintain current export levels. 
  • Internal inefficiencies within Russia's oil sector, as well as the remote locations of remaining reserves and potential shifts in future oil demand, add up to a murky future for the country's energy-reliant economy.
  • Moscow may adjust its budget to ensure plummeting oil prices don't cut into its government spending, but proper economic diversification away from energy remains a complex and unlikely process. 

Russia's easily accessible oil reserves have long been the cornerstone of its economy. But these conventional fields are depleting, leading to the need to invest and expand into more untapped sources. This transformation will not be easy or cheap, as various factors have led to a poorly optimized oil sector that's ill-equipped to soften the blow of rising costs. The key to maintaining a strong energy market, and securing the capital needed to develop new and expensive fields, will instead rest on whether Moscow can secure its foothold in China's increasingly oil-hungry market. In any case, Russia may have little choice but to accept that its glory days of oil dominance and high profit margins are nearing an end. ...

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