A popular post on Russian social media this week depicts Karl Bryullov’s apocalyptic painting “The Last Day of Pompeii”, with Igor Sechin, head of Russia’s biggest oil company, added to the picture, amid the carnage and suffering . Mr Sechin does not look the least bit perturbed. As the most powerful man in Russia’s oil industry and one of President Vladimir Putin’s closest confidants, Mr Sechin was the architect of Moscow’s decision to withdraw last week from a pact with Saudi Arabia to limit crude production, sparking an oil war that sent prices crashing 30 percent on Monday, upending global markets.
The shock of a new fight for market share, and its potential to devastate rival producers in the US, terrified investors who dumped American shale company shares in a brutal Monday-morning sell-off. By contrast the Kremlin has appeared calm and unfazed.
Armed with a $57obn foreign reserves war chest, a floating exchange rate and an economy that relies far less on foreign capital and imports than just a few years ago, Russia believes it can weather the sharpest fall in crude prices since 1991 for longer than rival producers such as Saudi Arabia and – most importantly – the US shale industry.
“With significant financial reserves available, the Russian government is probably right to think that it can sustain a low price environment for some time,” said James Henderson, a director at the Oxford Institute for Energy Studies. “It won’t be easy, but three years would probably be achievable.”
‘W‘e suspect that oil prices would probably have to drop to $25 before Russia changed tack
William Jackson, chief emerging markets economist at Capital Economics
US shale producers, dependent on high prices and the goodwill of investors to fund a business model that requires constant spending, have been huge beneficiaries of Russia’s co-operation with Opec in the past four years.