Putin hasn’t been shy about using his country’s energy exports as a geopolitical tool in recent months, but that energy weapon is a double-edged sword. As Reuters reports, Russia’s global oil and gas clout also makes it vulnerable to the vagaries of hydrocarbon pricing:
The alarm bells will start ringing if it falls significantly below $100, forcing the government to pay more attention to propping up an economy already close to recession.The International Monetary Fund warned in May that Moscow had no contingency plan for such a scenario, so a sustained tumble in the price of crude could even undermine Putin’s grip on power.“If the oil price goes down to $75 and stays there for a few years, Russia will have regime change,” said a prominent Russian economist who asked not to be named.
Putin has been playing his hand very well these recent months. But in many ways, his position in Russia, and Russia’s position on the geopolitical stage, is precarious. The country’s economy is no juggernaut, and roughly 40 percent of Moscow’s budget is derived from oil sales. Even a relatively small $10 dip in the price of oil would cost Russia 5 percent of its budget revenue, and 1 percent of its GDP.Lower oil prices aren’t the only threat to Russia’s economy. The country’s hydrocarbon output, though formidable, has stagnated in recent years. Siberian fields, which make up 80 percent of the country’s production, have matured, and their output is falling. Moscow has been slow to invest in new plays, and in new technologies as well. This is most apparent when it comes to shale, a resource about which Russia was seemingly in denial as recently as August of last year. Since then, Russia has woken up to shale realities, but the latest round of Western sanctions is aimed at keeping the technology necessary for unlocking these reserves from a belligerent Moscow.For better or for worse, Russia’s strength is strongly entwined with its ability to ply its hydrocarbons.