Perspectives on the Potential of Russian Oil

Reproduced by permission of Eurasian Geography and Economics (Vol. 45, No. 5, July 2004). This article comments on “Observations on the Problematic Potential of Russian Oil and the Complexities of Siberia,” by Leslie Dienes, appearing in the same issue.

“Like all booms,” Russia’s oil boom has to end some day. The important questions are when, and how fast it will end. Leslie Dienes does not give precise answers to these questions. That would be impossible. But he does offer a sound basis for answers.

It is becoming increasingly clear that the Russia’s oil sector has been and will for the foreseeable future continue to be the key to the country’s economic performance. Since 1997 Russian GDP growth has moved nearly lock-step—first down, then up—with the level of world oil prices (See Fig. 1). This congruence is almost surely not accidental. No one doubts that recent years’ high oil prices have been a windfall for Russia, even though observers disagree about how much the high prices have contributed to growth. Sometimes lost in the focus on the oil price impact, however, is the extent to which Russia has also gained by steep growth of oil output-nearly nine percent per year over the past five years (See Fig. 2). As the most recent OECD report on the Russian economy puts it, Russia has been “pumping growth” (Ahrend, 2004).

That this growth is endangered by any sharp fall in oil prices is broadly acknowledged. Leslie Dienes’ article focuses on the other, more serious dimension of concern: Is Russia beginning to “run out of oil” at nearly any price?