Russia resurgent: Oil sees a turnaround in 2016
The year started poorly for Russia, however it's certainly ended well.
In January, the price of oil was moldering — below $30/b on occasion. Given Russia’s dependence on oil and gas revenue, the budgetary outlook was bleak. hillary Clinton was going to be elected because the next president of the us. Sanctions against Russia, imposed over its role within the ukraine conflict, would continue, and the EU would more frustrate Russian plans for major new gas pipelines and its goal of a complete Ukrainian bypass.
In addition, Russia’s Syrian ally, President Bashar al-Assad, was under severe pressure not just from democratic rebels, however radical islamist forces, a particular concern for Russia given its own issues in chechnya.
What a difference 12 months will create.
In the US, the election of Donald Trump as president and his nomination of ExxonMobil ceo Rex Tillerson as secretary of state couldn't be better for moscow. Tillerson could be a noted critic of sanctions against Russia, wherever ExxonMobil has substantial oil interests, arguing that they hurt not so much the target country, however us companies trying to do business there.
If nominated, he's expected to recommend their removal. Trump has also created indications that he can seek a way more cooperative relationship with Russian President vladimir putin and, if the cia is to be believed, Russia appears to have had a direct hand in Trump’s election.
In Syria, a key bastion of the rebels, eastern city, finally fell in december, once a bloody and lengthy conflict that has caused huge civilian suffering. The victory for the Assad regime, that the un has confirmed has used chemical weapons against opposition forces and civilians, couldn't are achieved without Russian airpower and different help.
The message is not most concerning Moscow’s disregard for human rights, however that Russia is both capable of and willing to defend its allies, whereas the West stands by impotently. although this doesn't resolve the Syrian conflict by any means, the message has become fact.
The EU, meanwhile, appearance weak and divided. The UK, one of its largest economies, has voted to leave, whereas there are a rash of votes for populist candidates across Europe, suggesting that devotion to the european ideal is somewhat less heartfelt at ground level than within the upper echelons of brussels. Negotiations with the uk on its exit are likely to consume the EU’s and London’s attention for years, with potential long-term economic harm for both sides. Despite the vote of no-confidence within the EU from britain, there seems to be no urgency in brussels to consider reform.
Russia has patched up its relations with Turkey and construction of its southern gas pipeline TurkStream is expected to start in 2017.
But Russia’s real issues lie in its budget and its over-arching dependence on oil and gas revenues.
Even here there's good news. A historic deal has been reached between opec and non-OPEC producers to cut 1.756 million b/d of oil from the market. moscow played a crucial role by offering to participate itself, and in shepherding other non-OPEC members to the table. Russia can contribute cuts of 300,000 b/d, and also the hope is that these output reductions can boost the value of oil and with it Russian tax receipts.
It’s a bold venture, however fighting wars within the middle east doesn't come cheap.
Moscow should hope that the deal is implemented and has a lasting impact on the supply/demand balance within the oil market. The oil price should rise sufficiently to more than reimburse the loss of volume. As of december 16, Dated brent was at $53.93/b, just over $10/b higher than its year to date average.