For years, the Organization of Petroleum Exporting Countries (OPEC) has courted Russia, though without much success. It’s easy to see why the attraction is there; the world’s largest country has huge oil reserves and the geopolitical clout to boost the cartel’s “muscle” by about a third.
But this past weekend, Russian Energy Minister Alexander Novak announced that Moscow is ready to meet with both OPEC and other oil producers to address the low price of oil.
This is an important development. It means that for the first time in nearly 11 months, geopolitics is likely to give support to higher crude – meaning price of oil get a new push.
We can expect something more from these meetings, as well…
Oil’s Plunge to $40 Has Everyone in a Tight Spot
OPEC’s decision to protect market share over price has even hit American producers, with their huge, expensive-to-extract new reserves of shale and tight oil.
But even as exporting countries struggle (sometimes violently) to balance budgets with deep oil revenue cuts, very little has been done on a geopolitical scale to correct oil prices. Major producers, like Russia, have appeared to sit back and watch their revenue crumble.
But now, Russia has all of a sudden cried “Дядя!” Uncle…
It’s who’s doing the producing that’s the pain point.
Whereas oil production in the United States is a private affair, in all other major producing countries, the sector is either led or controlled by state companies.
So for Russia and all OPEC countries, the dive in prices was more – much more – than a private sector bottom-line consideration. All government programs and expenditures are impacted.
To make matters worse, these economies are largely undiversified; oil is the sole source of revenue. Even in Russia, oil and natural gas are the primary sources.
But Russia also has other concerns.
