RIYADH: With the oil markets crashing, Moscow is in for hard times. Russia is deeply dependent on energy revenues. In 2013, Russia’s energy exports constituted more than two-thirds of total exports amounting to $372 billion of a total $526bn, the Renaissance Capital bank said in a recent report.

With most of its budget revenue coming from energy exports, and crude markets falling, Russian economy is in disarray. The Federal Statistics Service data is now confirming that inflation rates were creeping at the fastest pace since June 2011. Consumer prices have also reportedly surged 9.1 per cent from a year earlier in November compared with 8.3pc in October.

And rouble, the Russian currency is under tremendous pressure too. It has lost almost half of its value since the decline began. The rouble has been marked as the worst performing currency among the 24 emerging-market currencies tracked by Bloomberg. In the beginning of the year, dollar was equivalent to 32 roubles.

The cost of sanctions on Russia and the melting crude prices is increasing. It is almost touching the $140bn mark. “We lose about $40bn a year because of the political sanctions and around $90-100bn a year due to the 30pc reduction in oil prices,” Russian Finance Minister Anton Siluanov said late in November.

And in the meantime, the $40bn South Stream pipeline, often termed as President Putin’s pipe dream, designed to carry gas to Europe across the Black Sea, bypassing Ukraine, is reportedly dead.

In a lightning visit to Turkey at the beginning of the month, Putin abruptly conceded that South Stream is virtually dead. “We feel Russia cannot continue implementing this project under the existing circumstances,” Putin said.

In the run-up to the Organisation of the Petroleum Exporting Countries (Opec) ministerial last month, when reportedly the proposal to shoulder the output cut burden by both Opec and non Opec producers was discussed, Russia opted not to participate in the output cut regimen.

Russia has been insisting it was difficult for it to cut output, underlining that its wells will freeze if they stop pumping oil, and that the country cannot store the output. Taking the cue, markets collapsed.

And given that its production cannot be stopped, the only option left would be for Russia to cut its exports, which stand at around 4 million barrels per day. However analyst say the oil that is not exported needed to be stored somewhere.

And Russia has limited storage capacity. Reportedly, Russia’s only major oil storage facility, the floating storage vessel Belokamenka located in the Barents Sea, can hold 2.6m barrels.

And in the meantime, Russia has been striving hard to overcome the impact of the brewing economic crisis. In order to circumvent the impact of falling crude prices and the sanctions, the oil-for-goods deal with Iran is also reportedly taking final shape.

Through the mechanism, “we can export a big volume of our non-raw materials exports, such as equipment for the oil and gas industry, agricultural machinery, motor vehicles, aircraft, railway cars, power machines, electricity generators (to Iran),” Russia’s minister of economic development Minister Alexei Ulyukayev told reporters earlier this month. Iranian Oil Minister Bijan Zanganeh too has hinted in past that though the government in Tehran has endorsed the deal, but nothing has been formalised.

And rather than throwing in the towel in the face of Western sanctions intended to halt Russia’s Arctic oil ambitions by preventing technology transfers, Russia has responded with plans to “Russify” the technology to be deployed in the world’s largest effort to date to extract oil from the thawing Arctic Ocean, media reports said.

“We will do it on our own,” Igor I. Sechin, the president of Russia’s state-controlled oil company, Rosneft, told journalists in October. “We’ll continue drilling here next year and the years after that.”

In the meantime, President Putin has also announced a four-year freeze on tax rates to help businesses and amnesty for capital returning.

The cat and mouse game on the global energy chess board continues.

Published in Dawn December 21th , 2014