Insight

Low oil prices and prolonged sanctions: How will Russia adapt?

12 February 2015

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12 February 2015

Low oil prices and prolonged sanctions: How will Russia adapt?

Report summary

Through low oil prices and sanctions, Russia looks to be sorely tested in 2015 and beyond. A recession is expected in 2015 and long-term oil supply growth is under threat. Geopolitical tensions between Russia and the west will increase the longer the Ukraine crisis goes unresolved. Russia’s efforts to establish stronger energy trade ties with China will accelerate.

Low oil prices and sanctions created turmoil in 2014
How will Russia adapt if sanctions and low oil prices persist?
- Liquids production will remain largely unaffected in the short to medium term
- Oil and gas financing may prove more problematic
- Economic stagnation will remain
- Government spending compromised
- Continued co-dependency with Europe in the long term, but shift East will accelerate
Risks
- More economic turbulence ahead
- Erosion of the President’s support base could lead to more unpredictable foreign policy
- Gas exports and long term oil supply growth in danger
Conclusion

Tables and charts

This report includes 3 images and tables including:

Brent price (US$/bbl), vs rouble exchange rate (RUB/US$), and major events in 2014
Russia liquids production 2014 - 2035
Brent oil price January 2014 - January 2015, US$ vs RUB