Tagged: Tight Oil

Politico | How to Lose an Energy War with Putin

Forget Glasnost, Mikhail Gorbachev and the arms race. What really broke the Soviet Union was the collapse of oil prices in the late 1980s. The late economist Yegor Gaidar, one of Boris Yeltsin’s prime ministers, wrote in 2007 that the empire’s fall could be traced back to Sept. 13, 1985, when Saudi Arabia, fed up with holding back supply to prop up prices, opened the spigots in a quest to recover lost market share. That day, he argued convincingly, was the beginning of the end.

The USSR, pumping almost 12 million barrels a day, was the world’s largest producer at the time. Riyadh’s change in policy caused a price shock: Oil fell from about $25 a barrel to less than $10 in the months that followed, and stayed low for the rest of the decade, costing the Soviet economy $20 billion a year in lost revenue—“money without which the country simply could not survive, ” Gaidar wrote.

Russia is the world’s biggest oil producer again now (though Saudi Arabia is the biggest exporter) but its economy still depends heavily on selling energy. Oil and gas exports account for about half of Russia’s budget and about 30 percent of its GDP. This makes it vulnerable. If the West wanted to punish President Vladimir Putin for his land grab in Crimea, runs the argument, it should target the energy revenues that keep his petro-economy afloat. (…)

(The extract above is published courtesy of Politico. The rest of it is here.)

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