In response to a request from the Organization of Petroleum Exporting Countries, on April 8, acting First Deputy Prime Minister Boris Nemtsov said Russia will cut crude oil exports by 2.3 percent as part of OPEC’s efforts to stabilize the world price of oil. Just days earlier, acting Fuel Minister Viktor Ott had reiterated that Russia has no intention of reducing export volumes. (Russian agencies, April 9; Russian TV, April 2)
It is clear — whether Moscow makes cuts or not — that Russia’s trade surplus and government finances will be badly hit this year by the slump in world oil prices. In a bid to restore the profitability of oil companies, the government has responded by cutting excise duties and transport tariffs. The next step will be to cut their tax obligations, which would put even more pressure on the federal budget. The diplomatic row with Latvia may also lead to lower exports, because Moscow is threatening to cut deliveries to the Latvian port of Ventspils, which handles 11 percent of Russian oil exports. (Izvestia, April 10)
Although it only accounts for 5 percent of global oil exports, Russia is the world’s third largest producer after Saudi Arabia and Iran. The world oil price has fallen from $21 a barrel a year ago to a nine-year low of $13 a barrel ($95 a ton) at the end of March. About one-quarter of Russia’s $80 billion annual export earnings come from oil sales, and oil taxes provide at least one quarter of federal revenues. The price dip will cost Russian companies $2-4 billion in lost revenue this year. In a move to protect oil company cash flow, the Russian government on March 27 halved the oil transport fee for oil exporters to $1.50 a ton. On March 30, acting Prime Minister Sergei Kirienko signed a decree eliminating the excise duty on oil exports (which had been 3.80 rubles per ton per 1000 km). (Finansovye izvestia, April 2; Financial Times, April 3)
…Reflects Chronic Decline in Oil Industry.