To understand Russia’s economy today, John Francis frequently informed his listeners, you have to understand its historical relationship to oil and gas. That Russia depended on oil was a generally accepted fact in informed circles. In 2009, the president of one of Russia’s major oil companies at the time, Lukoil, Vagit Alekperov, described his country as a major player in the sector, occupying a key position in the international energy market. Russia’s annual deliveries to the EU were equivalent to more than four hundred million tons of oil, or nearly a third of the EU’s energy consumption.
What Alekperov, or anyone else for that matter, had not foreseen was the arrival of considerable quantities oil and gas from new and hitherto unimagined sources. American shale oil production propelled the US to the top of the production league, an event not seen in decades. The consequence of overproduction was a vertiginous decline of energy prices, a disaster for economies like Russia’s, where oil revenues contributed seventy percent to the budget of the state.
Alekperov had imagined the world’s fate hinged on the Russian Federation, which not only produced a large share of the world’s energy – over ten percent, but exported half of it.
At that time, so very recent, it seemed to the World Energy Agency that a large number of the world’s oil fields had passed their peak and production would fall nearly twice as fast as had been previously thought. According to their thinking, world oil production was declining rapidly, and by 2030 they had forecast a significant shortage of oil.
It was no wonder journalists dubbed oil ‘black gold’.
In the face of such thinking, Alekperov could have never imagined, in the space of just six years, world production would in fact rise, and to a such a point market prices would collapse, as new producers inundated the world in an ocean of oil.