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Oil and gas

In Putin’s Russia, oil is a global tool

Irina Avetisyan  Market Analyst, Oil Products & Petrochemicals

Tom Kenison  Analyst, Oil Research

Irina Avetisyan  Market Analyst, Oil Products & Petrochemicals

Tom Kenison  Analyst, Oil Research

Newly re-elected Russian President Vladimir Putin has a powerful tool at his disposal: Oil. He's worked to build up his country's oil infrastructure so he can use it to buy favor and influence from critical allies.

Russian President Vladimir Putin has spent the last six years in office capitalizing on his country’s immense oil capacity, a Thomson Reuters Oil Research analysis has found. Putin, who won re-election March 18, has used his country’s oil as a political instrument, buying influence strategically to cement Russia’s position as a global force.

A new oil rush

Putin served as president of Russia from 2000 to 2008 and as prime minister from 1999 to 2000 and again from 2008 to 2012. Since his second election to the presidency in 2012, Russian crude oil production has risen from 6.2 million barrels per day (bpd) to a peak of 11.23 million bpd in October 2016. During his presidency, Russia has greatly increased its crude oil exports. In 2017, its total crude oil exports reached around 5 million bpd, almost 15 percent more than the 2013 average.

With its 80 billion barrels of proven crude reserves, Russia has long had the raw material. Under Putin, Russia developed strategic pipelines in order to transport crude oil from remote locations, such as Siberia, to satisfy geographic shifts in demand.

A general view shows the Taneco refinery complex, which is part of Russia's oil producer Tatneft group of companies, in Nizhnekamsk, in the Republic of Tatarstan, Russia.c REUTERS/Sergei Karpukhin
A general view shows the Taneco refinery complex, which is part of Russia’s oil producer Tatneft group of companies, in Nizhnekamsk, in the Republic of Tatarstan, Russia.c REUTERS/Sergei Karpukhin

Investing in infrastructure

For example, the Druzhba Pipeline, which flows from eastern Russia across Belarus, the Czech Republic, Germany and Poland, operated at just 50 percent capacity in 2017. All told, it has an estimated 1.4 million bpd total capacity.

Russia’s state-owned companies, like Rosneft and Gazprom, have been involved in significant deals in the Middle East that have borne political undertones. In October 2017, Rosneft bought 60 percent share in the 600,000 bpd pipeline that runs from the Kurdistan region of Iraq to the Turkish port of Ceyhan at a cost of US$1.8 billion. Thanks to that move, Russia now controls one of the most strategic pieces of energy infrastructure in the Middle East, at a price many western oil companies could not afford. Rosneft signed Production Sharing Agreements in October 2017 for five blocks with recoverable reserves of 670 mmbbl in Kurdistan at a cost of US$400 million.

A new place on the global stage

Russia hasn’t kicked up its oil production and upgraded its infrastructure for nothing. Its dealings with China provide an example of how Russia uses oil as currency, cultivating allies and adding complexity to the global diplomatic structure.

Russia’s share in total Chinese crude oil imports rose to 14 percent in 2017 from 9 percent in 2012. Average crude oil exports from Russia to China increased from 0.47 million bpd on average in 2012 to 1.16 million bpd in 2017, with an increase of 146 percent. Furthermore, Russia has signed an agreement to supply China with 30 million tons of Eastern Siberia-Pacific Ocean (ESPO) crude in 2018.

A pump jack is seen at the Ashalchinskoye oil field owned by Russia's oil producer Tatneft near Almetyevsk, in the Republic of Tatarstan, Russia. REUTERS/Sergei Karpukhin
A pump jack is seen at the Ashalchinskoye oil field owned by Russia’s oil producer Tatneft near Almetyevsk, in the Republic of Tatarstan, Russia. REUTERS/Sergei Karpukhin

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