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Russian political shakeup leaves OPEC strategy up in the air

Political changes announced in Russia Wednesday raise questions over the country’s future OPEC+ strategy, although analysts say they expect President Vladimir Putin — a key advocate of the OPEC+ oil production cut agreement — to retain influence over Russian energy policy.

George Voloshin, head of Aperio Intelligence in Paris, said he does not expect Russia’s broader energy policy to change much following the resignation of Prime Minister Dmitry Medvedev’s government.

“Energy is an area over which Vladimir Putin’s Kremlin has traditionally exercised direct authority, given the Russian president’s personal interest in energy issues and their active use by Russia as a foreign policy tool,” Voloshin said.

This includes Russia’s role in the OPEC+ grouping of oil producers, of which Putin has been a vocal supporter. He even announced OPEC+ future plans on the eve of the group’s meetings last summer.

Current energy minister Alexander Novak has also been instrumental in securing and maintaining the OPEC+ production restraint agreement, which has boosted oil prices, as well as opening up lucrative opportunities for Russian companies to increase bilateral cooperation with OPEC member states.

Earlier this week, OPEC Secretary General Mohammed Barkindo underlined the importance of individuals in the deal’s success.

“The bond between participating countries has become very strong, including, of course, personal friendships across capitals and nations,” he said, speaking on the sidelines of the International Petroleum Technology Conference in Saudi Arabia.

On Thursday, the former head of the Federal Tax Service, Mikhail Mishustin, was appointed prime minister, but he has yet to indicate whether current ministers, including Novak, will retain their position in the new cabinet.

Other key roles for the energy sector include deputy prime minister with responsibility for energy policy, currently Dmitry Kozak; natural resources minister, currently Dmitry Kobylkin; finance minister, currently Anton Siluanov; economy minister, currently Maksim Oreshkin; and foreign minister, currently Sergei Lavrov.

Energy is a vital sector for Russia, which produces more than 11 million b/d of crude oil and is Europe’s largest supplier of natural gas. Revenues from the oil and gas sector accounted for over 40% of Russia’s budget revenues in 2019. Furthermore, oil and gas exports are primarily paid for in foreign currency, helping the government to mitigate the impact of volatility in the ruble exchange rate.

Mishustin policies
It is as yet unclear what energy policy Mishustin himself favors, but he has a reputation for efficiency and innovation.

“Mikhail Mishustin has an impressive track record as head of the Federal Tax Service, which significantly improved tax collections and embraced new technology during his term in office,” analysts at ATON wrote in a note published Thursday.

Voloshin said that so far Mishustin’s only oil comments have been the suggestion that Russia may raise the cut-off point for oil export sales revenue above $40 plus indexation.

“This is clearly geared towards freeing up more money for the funding of the costly initiatives that Putin outlined in his message yesterday and the new government will be tasked with implementing,” Voloshin said.

Analysts see Putin as likely to continue to play a key role in Russian political life post 2024. The plans for constitutional reforms announced Wednesday would shift some powers away from the president to parliament and the prime minister. Putin’s presidential term of office expires in 2024 and, under the current constitution, he will have to step down when it expires. It is his fourth — and second consecutive — term as president.
Source: Platts

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