Home / Oil & Energy / Oil & Companies News / 30 years on: How the collapse of the Soviet Union transformed Russia into a global energy powerhouse

30 years on: How the collapse of the Soviet Union transformed Russia into a global energy powerhouse

It has been 30 years since the collapse of the Soviet Union, an event which had a major impact on global energy markets.

A drop in oil prices in the late 1980s was exacerbated by a decline in Soviet oil production from 1988. This put pressure on the Soviet economy, which contributed to political instability and growing calls for independence throughout 1991.

“The oil glut of the 1980s, which followed the 1979 oil price shock, was a direct contributor to the collapse of the Soviet Union in 1991. The USSR had just before that become a major global oil producer; lower prices immediately resulted in a substantial loss of hard-currency export revenue, forcing the USSR to deplete its official reserves amid growing deficits of almost everything across the union,” said George Voloshin, head of the Paris branch of Aperio Intelligence.

At the beginning of January 1984, Platts assessed Russia’s key crude grade Urals CIF Med at $28.55/b. On January 31, 1986, prices fell to $19.95/b and remained below $22/b until August 1990 when global prices rose sharply following Iraq’s invasion of Kuwait.

Production dynamics
Shortly following the collapse of the Soviet Union, Russian oil production volumes continued to fall.

“Turbulence in the immediate aftermath of the Soviet Union’s dissolution caused the region’s crude and condensate supply to fall by 4.2 million b/d between 1990 and 1994 alone,” said Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics.

But the new economic and political reality also created new opportunities. Newly independent countries were free to pursue independent energy policies. Privatization of oil and gas assets allowed foreign investors to enter post-Soviet markets and introduce cutting edge technology to production sites. They also helped to expand the geographical scope of Russian production, as new projects developed in Eastern Russia including offshore Sakhalin, as well as in the far North of Russia.

“Subsequent periods of Russian oil company privatization ultimately triggered more focused investment, increased efficiencies and technological advances, all of which paved the way for nearly unabated production growth since 1998,” Sheldon added.

Other former Soviet States have followed similar policies.

“Outside of Russia, landmark foreign investment deals in Kazakhstan and Azerbaijan continue to bear fruit, helping to lift total FSU production by over 7 million b/d between 1998 and 2019, before OPEC+ cuts caused a rare drop in 2020,” Sheldon said.

Export options
Foreign investment has also enabled oil and gas producers to develop new infrastructure projects, transforming the customer base for the region’s oil and gas.

“The emergence of new export infrastructure, in addition to the Druzhba oil pipeline which was built in the 1960s, has contributed to the expansion of oil producing areas within Russia,” Voloshin said.

Key new projects include the Eastern Siberia-Pacific Ocean oil pipeline commissioned in 2009 to export to China and the broader Asia-Pacific region. The Baltic Transport system increased export capacity from projects in the Volga Urals and West Siberia as well as Northern Russia. In recent years the government has prioritized development of oil and LNG shipping via the Northern Sea route, which ships to Europe and Asia through Arctic waters.

“I look at how Putin was able to become friends with China and to send more oil to the east and especially start sending more gas to the East and in the Arctic, you look at what’s happening on Yamal, you look at what’s happening on the second Arctic project, there’s going to be a lot of gas flowing to the East and that’s going to be in direct competition with Qatar and Australia,” economist and energy expert Cornelia Meyer said.

Exports and the battle for market share has led to some problems, particularly over European reliance on imports of gas from Russia as well as the influence that Russia has on countries that transit Russian gas to Europe. New export infrastructure has also been a key target for US sanctions introduced in 2014 over Russia’s role in the conflict in Ukraine.

30 years on: How the collapse of the Soviet Union transformed Russia into a global energy powerhouse

Economic resilience
Russia’s dependence on oil and gas revenues has also transformed over the past 30 years. In 1998 a drop in oil demand sparked by the Asian financial crisis led Russia to default and the ruble to significantly devalue.

From 2000, when Vladimir Putin became Russia’s president, a steady rise in oil prices allowed Russia to pay off large amounts of foreign debt and establish a stabilization fund as protection against price volatility. This mitigated the impact of the global financial crisis in 2008 and has helped the country cope with subsequent price volatility, including the impact of growing US shale output since the mid-2010s.

In recent years Russia’s improved budget resilience has allowed it to bargain for increased output volumes within the OPEC+ agreement, as many other members of the coalition’s state budgets are more sensitive to oil price volatility.

As the region marks 30 years since the collapse of the Soviet Union, these trends continue to drive political and commercial priorities. The energy transition will add an extra dimension, as producers attempt to balance plans for new hydrocarbons production and export projects with growing concerns about the environment and the increasingly evident impact of climate change.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping