London: Russia is battening down the hatches for a Biblical collapse in oil revenues, warning that crude prices could stay as low as $40 (Dh147) a barrel for another seven years. Maxim Oreshkin, the deputy finance minister, said the country is drawing up plans based on a price band fluctuating between $40 and $60 a barrel as far out as 2022, a scenario that would have devastating implications for Opec, the Organisation of Petroleum Exporting Countries. It would also spell disaster for North Sea producers, Brazil’s offshore projects and heavily indebted Western producers. “We will live in a different reality,” Oreshkin told a forum in Moscow. The cold blast from Russia came as US crude slipped to $36.14, pummelled by the continuing fallout from the acrimonious Opec meeting last week. Record short positions by hedge funds have amplified the effect. Bank of America said there was now the risk of a “full-blown price war” within Opec itself as Saudi Arabia and Iran fight out a bitter strategic rivalry through the oil market. Brent crude fell below $39, the lowest level in seven years. The International Energy Agency said in its monthly market report that Opec has stopped operating as a cartel and is “pumping at will”, aiming to drive out rivals at whatever cost to its own members.
Freewheeling Opec policy
Opec revenues will fall to $400 billion this year if current prices persist, down from $1.2 trillion in 2012. The IEA said global oil stocks are already at levels of 3 billion barrels, and are likely to increase by another 300 million over the next six months as “freewheeling Opec policy” floods the market. The watchdog played down fears that the world is running out of sites to store the glut, pointing to 230 million barrels of new storage coming on stream. Inventories in the US are still only at 70 per cent capacity. Russia’s warning is the latest escalation in a game of brinkmanship between the Kremlin and Saudi Arabia, already at daggers drawn over Syria. The Russian plans convey a clear message to Riyadh and Opec chiefs that it can withstand very low oil prices indefinitely, thanks to a floating rouble that protects the internal budget. Russia claims to have the strategic depth to sit out a long siege. It is pursuing an import-substitution policy to revive its industrial and engineering core. It can ultimately feed itself. The Gulf Opec states are one-trick ponies by comparison. Kremlin officials suspect that the aim of Saudi policy is to force Russia to the negotiating table, compelling it to join Opec in a super-cartel controlling half the world’s production. Saudi Arabia’s leaders are fully aware of the Kremlin’s painful predicament. They appear certain that they can outlast Russia in a long duel. But Russia is calling Opec’s bluff, gambling that it has the greater staying power.
