Global Insights: Oil Sector a Challenge for Russia, Opportunity for U.S.

Global Insights: Oil Sector a Challenge for Russia, Opportunity for U.S.

Though Russian oil production continues to rise and is currently approaching Soviet-era levels, forecasts predict it will soon peak and then decline, causing potential problems both for global oil importers and the Russian government’s budget.

Averting this decline will require applying more-advanced production techniques to existing fields and exploiting new ones in the Arctic Ocean and elsewhere. Russia’s oil companies will be unable to accomplish this transformation on their own, however. To do so, they will need to secure greater foreign investment and partnerships offering more-advanced technologies and the exposure to better management skills. The benefits of increased foreign investment in the Russian oil sector would be felt by Russians, in terms of their everyday socio-economic conditions, as well as in U.S.-Russian relations, which would be widened and strengthened. Yet, foreign companies, especially those based in the United States, will continue to hold back from supporting the Russian oil sector until the Russian government creates a more benign environment for foreign investment.

Last year, Russian oil production increased by an average of 100,000 barrels per day (bpd), to 10.4 million bpd, the highest total since the collapse of the Soviet Union. As Russia exports about half its production, the increase has helped keep oil prices down, with follow-on benefits for a global economy struggling to return to strong growth.

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