We’ve been talking a lot this week about the precipitous decline of crude oil prices, in part because of how swiftly this drop-off has come on, but also because of the widespread impact this is having on both producers and consumers. While Americans are enjoying cheaper gas prices, petrostates are starting to feel the pinch, as you can see in the chart above. Those horizontal lines express a number of important breakeven prices—the lowest price at which a supplier must sell its crude in order to stay in the black. For petrostates that rely on oil sales as key components of budget revenues, this can act as a constraint against all sorts of state strategies. For U.S. shale producers, this could constrain what has been to this point a relatively unchecked production renaissance.Brent crude, Europe’s benchmark, is trading around $85 per barrel, high enough to sustain American shale production, but low enough to unbalance the budgets of states like Russia, Saudi Arabia, Iran, and Venezuela. Vladimir Putin recently rebuffed such concerns, and said the recent drop in prices was no tragedy for the Kremlin. The chart below tells a different story:
This chart, sourced from Bloomberg data, illustrates the outsized effect oil prices have on Russia’s budget. Below $104 per barrel, Moscow starts to run in the red. At $90 per barrel, it runs a budget deficit equivalent to 1.2 percent of GDP, and at $80 per barrel, that deficit rises to 2.3 percent of GDP. Putin can spin this however he likes, but a bearish oil market is not in Russia’s best interests.