Russia's Declining Oil Capacity and the Deeper Problems of Cartel Politics

I am always amazed at how William Spaniel manages to put lines on maps, even if the subject doesn't require it. We love you mr Lines on Maps guy

Grew up in the oil industry and can say that seeing how Russia is putting out these fires tells you all you need to know. They are short on expertise and resources. Their oil industry is experiencing death by a thousand cuts. Ukraine is hitting the exact weak spots now and making it difficult to a) put out the fires, and b) get the capacity back on line. Looking at 2 years of this war minimum, infrastructure damage will reduce output by at least 30%-40%.

Oil,production, takes a lot of maintenance, if you don’t do it the production will show down, the oil well need to run, if the oil pipes in the ground is not moving the pipes will be subject to scale growth and erosion because of the oil holes up acid , salt out of the ground. This is a nightmare for Russia. Just look at Venezuela oil production.

With any cartel, there is always an incentive to cheat, which eventually destroys the cartel’s scheme to restrict supply.

OPEC cuts, degrading infrastructure that is difficult to repair (sanctions / loss of skilled labor) and Ukrainian strikes are causing tremendous difficulties for the Russia state. I see this continuing for the foreseeable future.

Cutting diesel export was really a bad sign. Infrastructures maintenance problems, enormous usage for the war, problems to keep the price in Russia low...for transportation, farming and so on. There is secondary sanctions also and they are really starting to bite. All of India's refineries are rejecting Russian crude that was shipped on Sovcomflot tankers, Bloomberg reported. The state-run shipping firm has been the target of a number of US sanctions since December. Previously Sovcomflot accounted for around 15% of Urals crude shipped to India. India has switched to Saudi Arabia and Gulf countries again. Russia has also now too much crude to sold easily to nobody and buyers can not use the US dollar also. China is using the yuan, after refusing to use the rubble and India was using UAE dirham....after Moscow refused the rupee...

Couple of points: 1. the need to distinguish production (and crude export) and refining (and refined product/distribution). From the information I have seen Ukrainian strikes have been on the later (St. Petersburg LNG export facility excepted). So crude production and export shouldn't have been affected by Ukrainian action. 2. Nature of Russian crude production - there are a lot of old fields which usually means enhanced recover methods to extract crude. The machinery and chemical necessary for this are probably very vulnerable to sanctions (and depleted technical staff). Many fields are in very harsh conditions requiring technologically superior equipment - again sanction may well have curtailed new wells and well maintenance necessary to maintain and/or expand production. I suspect the inability of Russia to produce or import western equipment is a key factor in declining production (and no, China doesn't make this sort of stuff). Another excellent analysis!

Peter Zeihan predicted that Russia would be unable to sustain its oil output. Its reliance on foreign companies ended when those companies left in 2022. Especially in Siberian fields on permafrost, expertise is critical to operate those fields. Zeihan observes that even before the USSR collapsed, technical schools in Russia closed. Qualified native workers are growing scarce, and the specialized equipment from Western companies can't be maintained without support from those companies. I expect more cuts from Russia, even if Ukraine mounts no further attacks. But of course Ukraine will mount more attacks if they can.

I'm glad SOMEONE is finally talking about the technical expertise needed to run these crazy complicated machines. People focus so much on the "sexy" stuff, but the boring stuff... the boring stuff always come to bite you in the ass.

One unacknowledged player (by the video) in the global oil market. USA is producing 14 MBD of light, sweet crude. The Saudi's aggressively moved to shut American shale production in during 2014, by flooding the market. They may be itching to do it again, which would bury Russia's production.

Russian miscalculations invading Ukraine is mind-blowing.@William Spaniel: Your work makes international politics make sense, or not, thank you.

Putin is like a cat that just fell off a table and now looks at you with this 'I meant to do that' look of disdain...

So India can buy OPEC oil but not Russian oil. Demand for Russian oil drops. Most countries want dollars for oil, certainly not Rubles. If no one is buying Russian oil there is no dollar input flow. Russia wants to buy technical contraband but sellers want dollars. Russia has a dollar crunch. Perhaps this is all about dollars rather than selling oil. Anyone that takes Rubles or Yuans for oil will get stuck with worthless money

Hard to believe Russia is cutting voluntary.

Missing in this otherwise excellent discussion is the fact that the principal demand for Russian oil and derivative products is from India and China, both of which will not be in a position to continue buying Russian gas and oil for much longer. India, because it fears sanctions from the US, and China, because its economy is imploding. Without demand for Russian oil, the Russians are going to be stuck with having to dramatically reduce production because they have no storage facilities great enough to hold all that unsold oil.

Shale oil production in the US is expected to continue to increase for at least the next 20 years. OPEC better plan on making cuts every year to keep the price of oil up.

Ukraine needs to continue to 'improve' Russian oil refineries.

The subtle Avatar reference was nice touch. Great video as always.

The more OPEC cuts, the more the United States increases production.

The crude oil export is not affected by Ukrainian drone attacks. It's the capacity to convert crude oil into diesel, kerosine and gasoline that's affected. Unless there's a pipeline constraint for crude oil exports (unlikely). The drone attacks at crude distillers therefore hardly drive the crude oil price up. But will lead to problems to provide these products for civilian purposes. I hope: rationing or extremely high prices for Russian civilians.