March 28, 2024

Russia’s attempts to wage hybrid wars all over the globe, in energy industry as well, is not a big secret anymore. At the same time Russia still remains completely raw-material and export-depending economy. To survive it should sell its oil and gas reserves, wood, diamonds and other mineral resources. The main source of foreign currency inflow for Russian budget is oil and gas, so Russia is extremely interested in keeping high prices for them.

The reason for current oil price collapse appeared in 2014. Back then, because of annexation of Crimea, military aggression on the territory of Ukraine, and involvement in Malaysian MH17 shot down economic sanctions against Russia were imposed. At once oil prices dropped from $112,6 per barrel to $49,7, as a result, Russian ruble has depreciated twice. Afterwards, oil price settled at $83 and did not go up. Sanctions are still imposed, and despite bravado of the Russian leadership they seriously get in way of the Russian economy development as well as of its access to financial markets, investments’ and technologies’ inflow; they block development of crucial economic industries. Living standards fall, the dissatisfaction of citizenship rises, public confidence in the government keeps going down. All the attempts to blackmail Ukraine and Europe by termination of energy resources have failed. Large, in fact, political, projects on gas transmission, that required a lot of Russian funding, failed to achieve desired aim (Power of Siberia, TurkStream), or were blocked (Nord Stream 2) at the final stage amid sanctions imposed by the United States. Besides, to Putin’s misfortune, President Lukashenko has disrupted his plan of creating the Union State, implementing of which would have guaranteed Putin unimpeded transit of his power. And Putin has urgently had to change his mind by making amendments to the Constitution in order to set terms of his presidency to zero and remain in power for 16 years more.

In this situation the increase of oil price was necessary for Moscow. One of the ways to achieve it is to provoke a conflict in the Middle East. On September 14, 2019, “unknown” drones and missiles destroyed the largest Saudi oil facility. Yemeni terrorists have claimed responsibility for the action; however, as later turned out, drones had been operated by Russian satellite systems. As a result, the amount of oil traded on markets has decreased; Saudi oil was at once replaced by Russian and American oil.

However, Kremlin’s plans to hold comfortable oil price were unexpectedly destroyed by COVID-19 pandemic, which provoked economic and financial crisis all over the globe. Quarantine measures imposed by countries affected by COVID-19 have brought industries to standstill, have broken logistic chains, led to fall of demand for goods and services and among other things – to decrease in oil prices. Partially it was Russia who provoked real oil price collapse. At the beginning of March Russia refused to support a proposal of OPEC members to provide additional oil production cuts amid crisis caused by coronavirus outbreak, as well as declined the extension of production cuts after April 1, which were adopted last year. As a result, Brent went down to trade at price of $29-30, while Russian Urals traded at $10,5, which means that the price on Russian benchmark has turned negative (its production cost for suppliers reaches $25). Russia budgeted the cost of Urals at $42,4 per barrel. Moreover, Saudi Arabia not only refused to reduce oil output, but increased production and fall to dumping suggesting $10 and more discount per barrel. Now Russia tries to make a deal with the United States and Saudi Arabia to cut oil production in order to maintain prices provided by agreement with OPEC+; however, still unsuccessfully.

Current recession threatens Russia much more serious consequences than the rest of the world. The shock, resulted from quarantine, exacerbates oil price collapse and loss of income from oil sale, while sanctions much deepen negative tendencies in the Russian economy. In March, Russian budgetary loss exceeded $300 million, the deficit was covered by the National Wealth Fund. In a year the loss of budget may reach 40 billion rubles. Experts consider that in two next years Russia will not manage to avoid being hit hard by recession and its social consequences including sharp increase in poverty and unemployment. These tendencies are important critically for current Russian regime.

That is why Russia intends lifting of sanctions. By all means Kremlin tries to clean up its image and restore relations with West defiantly providing Europe and the United States with humanitarian aid and calling for consolidation to combat the epidemic. However, it wages hybrid war in Ukraine, provides military support for dictatorial regimes of Bashar Assad in Syria and Nicolas Maduro in Venezuela. Russia uses its private military companies in Libya, provides informational campaign to discredit European establishments, deepens anti-European sentiments in the EU countries, etc.

If Russia keeps following such a strategy, whatever efforts it makes and whatever politic ploys it uses, lifting of sanctions in the nearest future is impossible unless it changes its far aggressive foreign policy. 

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