Oil forecasts need a new asterisk for supply instability

Feb. 13, 2015
Do projections of worldwide oil supply need another asterisk?

Do projections of worldwide oil supply need another asterisk?

Projection asterisks relate to those ever-present but easily overlooked losses that can occur if instability becomes turbulence in rocky places like Nigeria, Venezuela, Iraq, and Libya.

Russia doesn’t usually appear in this group. But that might be changing.

The country produces 11 million b/d of crude oil and depends excessively on oil revenue. Its economy has been ravaged by collapses of oil prices and of the ruble and by international sanctions responding to expansionism in Ukraine.

In consequence, the authoritarian regime of President Vladimir Putin is under pressure.

Alexander J. Motyl, professor of political science at Rutgers University-Newark, envisions the end of Putin’s tenure.

In a Feb. 5 Foreign Affairs online essay, Motyl wrote: “The longer the Russian war against Ukraine continues, the more likely it is that [Putin’s] regime will collapse.”

A week after Motyl’s essay appeared, leaders of Russia and the European Union agreed to a cease-fire in eastern Ukraine, where government forces have been fighting separatists backed by Moscow.

The settlement has been characterized, even by the EU officials who negotiated it, as limited and dependent on the Russian president’s questionable goodwill.

It might stop the immediate fighting. But it doesn’t end Russia’s war on Ukraine. And the Russian economy swoons.

Eventually, argued Motyl, Putin will have to slash spending. But he can’t cut outlays for the military or support for hard-pressed Russians.

Eventually, he’ll have to trim payments to a coterie of loyal power-brokers on whom he depends. That move would raise chances for a coup d’etat. Another possibility is popular revolution, even though 85% of Russians say they support the president.

Putin, according to Motyl, will be crippled in any event by “unrest in Russia’s non-Russian regions.”

So how might a regime change affect Russian oil production? The answer would depend on how the change occurred and how a Putin successor behaved.

Meanwhile, Russia merits an asterisk in forecasts of global oil supply.

(From the subscription area of www.ogj.com, posted Feb. 13, 2015; author’s e-mail: [email protected])

About the Author

Bob Tippee | Editor

Bob Tippee has been chief editor of Oil & Gas Journal since January 1999 and a member of the Journal staff since October 1977. Before joining the magazine, he worked as a reporter at the Tulsa World and served for four years as an officer in the US Air Force. A native of St. Louis, he holds a degree in journalism from the University of Tulsa.