Russia's dependence on oil and gas revenues is steadily declining, by Georgy Bovt for Rossiyskaia Gazeta.10.07.2024.
The Wall Street Journal caused a stir in the oil market, citing Saudi Arabian Oil Minister Abdulaziz bin Salman, who wrote that prices could fall to $50 per barrel if OPEC+ members fail to comply with production quotas. OPEC, however, hastened to deny this information. However, there is no smoke without fire: most likely, this is about Riyadh's intention to "intimidate" those members of the expanded cartel that do not comply with the established quotas. This primarily concerns Iraq and Kazakhstan (the Saudis even sent delegations to both countries recently to "call them to order"). Russia observes quota discipline: the rules allow for a slight temporary excess. Our country allowed it in the summer (at the peak of demand for fuel) and now, according to the same rules, it is compensating for it by reducing production in October by 10 thousand barrels per day, in November by 30 thousand, and by the end of September next year Russia must reduce production by 480 thousand barrels per day.
Against the backdrop of Riyadh's unambiguous hints, many began to talk about the possibility of a repeat of the 1985-1986 scenario, when the kingdom, in a fight to maintain its market share, sharply increased production and brought down oil prices, which had a detrimental effect on the USSR economy. However, since then the world has changed, the Russian economy has changed, and the cartel's influence on the market has not increased. This year, the share of the OPEC+ member countries on the oil market was 48%, last year it was 50%, and in 2022 - 51%. Yes, the Saudis have an oil production cost of less than $10 per barrel (in Russia it ranges from $20 from old wells to just over $40 on the shelf and $50 at new wells, which is comparable to the cost of shale oil production in the US - $35-50 and conventional oil at $43-45), and they can easily increase production in order to maintain market share. However, the kingdom's budget is more than 75% dependent on oil. Given Riyadh's huge spending, including on the ambitious Vision 2030 modernization program, in 2023 the breakeven price of oil was $81 per barrel (the world price was already lower), this year it is already $96 (the price of Brent is now $73-75). The budget has been in deficit for the second year: this year the kingdom's revenues will amount to $312 billion with expenses of $333.5 billion. And the national debt has reached 24% of GDP (in Russia it was 15% of GDP in 2023, in the EU on average - 82%, in the US - 123%).
In Russia, the share of oil and gas revenues in the budget is actually falling. From 2011 to 2014, it averaged 50% of budget revenues, against the backdrop of low prices in 2015-2017, it fell to 39.5%, in 2022, against the backdrop of sharply increased prices, it rose again to 41.6%, last year it was 30.3%, and this year it may be 31.3% (the forecast for 2026 is 25.2%). At the same time, the decline in the share of oil and gas revenues is occurring in the context of a significant increase in total revenues and a reduction in the budget deficit, which has not been observed in the entire post-Soviet period. Usually, everything was the other way around. Now, the total federal budget revenues in 2025 are expected to be at the level of 40.3 trillion rubles, which is 11.6% y/y higher than the plan for 2024 (36.1 trillion rubles) and 1.6 times higher than revenues in 2021 (25.3 trillion).
The 2025 budget includes an export price for Russian Urals oil of $69.7 per barrel (which means Brent should be closer to $80) at an exchange rate of 96.5 rubles per dollar.
The current situation in the Russian Federation is strikingly different from the late USSR, and the country's budget is more resistant to price fluctuations than the Saudis'. So the West has fewer levers of influence on Russian finances through "oil sanctions" and price manipulation. Therefore, when Deputy Prime Minister Alexander Novak says that the Russian Federation will withstand "any prices" for oil, he is not so far from the truth. Of course, we are not talking about eternally low prices. The same Saudi Arabia, if it undertakes a price war, will rely on its gold and foreign exchange reserves (more than $450 billion) and an increase in debt, but this resource is not endless. The kingdom is already ready to abandon the target price for oil at $100 per barrel and is preparing for a long period of relatively lower prices.
The threat to oil prices in the near future may come not so much from Saudi Arabia, which so far has only hinted at the possibility of increasing production as punishment for "OPEC+ disobedients", but from the slowdown of the global economy and, above all, its two main "workshops" - China and the USA. In China (it is an importing country, unlike the USA), oil consumption has already decreased by 3% from January to August.
This may overlap with the plans of OPEC+, which has been voluntarily reducing oil production by 2.2 million barrels per day since the beginning of this year, to gradually roll back these cuts from December. However, this is unlikely to happen automatically. The decision may still be adjusted, since the expanded cartel monitors the balance of supply and demand every month and can adjust if there is a deficit or surplus of oil on the markets. Since oil and its prices are one of the most volatile factors, forecasts are constantly changing. At present, the International Energy Agency forecasts a deficit of 100 thousand barrels per day of oil supply in the fourth quarter with a slight decrease in global demand to 103.9 barrels per day. There is also a factor of geopolitical risks - due to the situation in the Middle East, as well as, in particular, around Iran (3% of world production) and the Strait of Hormuz, through which large oil traffic passes. Finally, oil-producing countries, including Russia, may - what a paradox - unexpectedly receive help from the American Federal Reserve System if it continues to lower the discount rate, "warming up the market", including the oil futures market. Also, too strong a fall in oil prices is not advantageous for America itself, with its strong oil and gas complex (which is itself a powerful lobby and is especially politically connected with the Republicans) and relatively high oil production costs (comparable, let us recall, to the Russian one).
So, in the short term, a 1985-1986-style oil price shock is not in sight anytime soon.
https://rg.ru/2024/10/06/griadet-li-cenovoj-shok-na-neftianom-rynke.html