24 Feb '12, 2pm
Drumbeat: February 24, 2012
In recent years it has been remarkable how much Russian physical and verbal aggression has coincided with oil prices. For example, its invasion of Georgia in August of 2008 coincided almost perfectly with the peak oil price of $147/barrel. Russia typically lobbies for the maximum price for oil on the world market. Although it is not a member of OPEC, its interests often coincide with those members, such as Iran, who also seek to maximize oil prices. Russia’s vulnerability to oil (and gas) price competition stems from the fact that its production costs are high and it is rapidly depleting its reserves. Costs are high because of weather, geology, great distances that must be traversed, and the deteriorating nature of much of its infrastructure. Consequently the Saudis, who can lift oil for a fraction of Russia’s cost, are much less vulnerable to price declines. If oil drops ...