Russian oil industry: Foreign, domestic interests

As the world’s second biggest oil producer, Russia has profited hugely from high world market prices for oil.

 

In contrast to the gas industry, the Russian oil industry was privatized in the 1990s and the domestic market for oil and oil products was liberalized. Foreign investors were allowed to play an important role in the development of the industry.

 

However, at present the Russian leadership is aiming to increase state control over oil production and to focus on the development of the domestic market. This strategy may hamper efficiency.

 

Oil Production and Exports

 

Though Russia holds only 7 percent of worldwide proven oil reserves, the country has in recent years been the world’s second largest oil producer, ranking between Saudi Arabia and the USA. Russia’s oil production is likely to rise until the end of this decade. However, for the following decade many forecasts are pessimistic. They see four main risks to production growth. First, known, accessible reserves are limited. Undiscovered oil reserves may be large, but their exploitation will be difficult due to their remote location and unfavourable geological conditions.

 

Second, investment in exploration and production has declined in recent years.

 

Third, onerous windfall profit taxes block rising world market prices from stimulating Russian oil production.

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