Falling World Oil Prices in Fact Benefit Russia, ‘Izvestiya’ Says

Paul Goble

            Staunton, March 21 – It has long been common ground in the West that declining oil prices, either as the result of government policy or technological innovation, helped to bring down the Soviet Union and undermine Putin’s Russia because lower prices mean that Moscow doesn’t get the income that it had when the prices were higher.

            That conviction has only been reinforced by the problems Vladimir Putin has had over the last decade at least in part because of falling oil and gas prices brought on by the shale oil revolution and declining international demand. And in most cases, this Western belief has been echoed by analysts and commentators in Russia itself.

            But in today’s Izvestiya, Dmitry Migunov argues such views are mistaken. In fact, he says, falling oil and gas prices have slowed the  turn to other forms of energy and thus ensured Russia’s possession of major oil and gas reserves will remain a major source of income for it far longer than expected (iz.ru/858440/dmitrii-migunov/podslastili-slantcevaia-revoliutciia-v-ssha-okazalas-vygodna-rossii).

            Because prices have fallen, he says, the shift to alternative forms of energy has slowed in many places. The price of oil is now so low that it makes more economic sense, at least in the short term that most businesses and governments care about, to remain with petroleum than to shift to solar, wind or other sources.

            For Russian oil producers and the Russian state, Migunov says, all this is “good news” over the longer term if not in the short.  According to the Izvestiya writer, “there are no reasons to suppose” that this situation will change significantly in the foreseeable future – and so exporting oil will be a winner for Russia even at lower prices.

            “All this means that the demand for heavy kinds of oil will only be increasing, and Russia as a key producer of such oil will be able to earn billions if not tens of billions of additional dollars” – a development that should allow it to be in a good defensive position if technology or politics change. 

            Migunov's argument is not without holes -- in the short term, falling prices mean lower incomes -- but it is compelling in two ways. On the one hand, it suggests that Moscow is coming to terms the new price of oil. And on the other, it represents a cautionary note to all those who have believed that falling oil prices will be the end of the Putin regime or even Russia.