Russia economy crisis warning: Oil cuts could curb growth

Cuts in crude production as part of the Organisation of the Petroleum Exporting Countries-led (OPEC) supply pact could deal a major blow to the oil-dependent Russian economy.

In October 2016 Russia pledged to cut output by 300,000 barrels per day from the peak of 11.247million.

OPEC, Russia and other exporters have agreed to maintain their restriction on crude supply for a second year to reduce stockpiles and support prices.

But the cuts could have a “negative impact on economic growth”, Russia’s central bank warned.

The Central Bank of the Russian Federation said: “We assume that the OPEC+ deal … along with weaker demand for natural gas from abroad will temporary curb growth in (Russian oil and gas) production, which may have a negative impact on economic growth in general.”

Earlier this year, Economy Minister Maxim Oreshkin said prices of US$70 per barrel of Brent were unsustainable and added that over the medium term, prices will most likely stay around US$60 a barrel. 

Higher oil prices last year helped Russia swing into the black earlier than most analysts projected, but some observers have noted that too high prices are not good for its export-oriented economy, either.

In a further blow Russian gas company Gazprom’s exports to countries outside the former Soviet Union fell by 10 percent in January. This is believed to be caused by relatively warm weather in Europe.

The global influx of electric cars in the 2020s could also pose a risk to Russia’s energy revenue, the central bank said. 

Given improving fuel efficiency and growth in electric car market, it said that peak oil consumption is likely to be reached in the mid-2020s, leading to lower crude prices.