Ever since Vladimir Putin’s regime began to exhibit the traits of a corrupt dictatorship, his opponents have often pinned their hopes for its collapse on fluctuations in global oil prices—this trend emerged as early as during the 2008−2009 crisis and resurfaced in 2015 and again in 2020. However, each time, the Kremlin weathered the storm without significant losses: following the global financial crisis in 2011−2012, oil prices soared to record average annual levels (in current dollars), while the abnormally low prices of 2020 were swiftly replaced by Russia’s fantastic oil and gas revenues in 2022.
Over the 25 years that the current Russian president has spent in or near the Kremlin, the global oil market has undergone dramatic changes. The United States, which was the largest net importer of oil in the early 2000s, increased its own production over 2.5 times, becoming a net exporter, while China emerged as the largest buyer on the market since 2013. At the same time, production growth in Africa, Oceania and North America reduced OPEC’s share of global supply from 40.4% to 35.3% while the share of Middle East remained virtually unchanged at 31.3−31.5%. Contrary to multiple predictions, oil has not become an obsolete resource: neither its production nor consumption peaked in 2003, 2006 or 2020s and Goldman Sachs analysts may be right to suggest that we are unlikely to see the long-anticipated reversal of the growth trend in oil consumption within the next decade.
Despite these shifts, Russia’s oil wealth continues to act as a stabiliser for its economy rather than a source of vulnerability. I have previously argued that the late Senator John McCain’s description of Russia as a ‘petrol station masquerading as a country’, contributed to dangerous underestimation of its potential—an oversight that misguided the actions of Western countries during the war in Ukraine. Everyone needs Russian oil, which is why efforts to cut off Vladimir Putin’s primary revenue source have largely failed. Meanwhile, as we approach the end of 2024, another outburst of predictions has surfaced about an imminent decline in Russian oil prices. This time, however, those who argue for it insist that it will not result from market processes, but from a deliberate effort by the United States and major hydrocarbon producers to undermine Russia’s economic potential.
But is this project likely to succeed, if it indeed exists? I would argue this is improbable—not because I like Viktor Chernomyrdin’s wonderful aphorism: ‘It has never happened before, and here we go again!’, but rather due to the current state of the global economy, which does not favour a decline in oil demand or a sharp increase in supply.
Oil prices have shown remarkable stability over the past two years, averaging USD 80.7 per barrel while fluctuating within a range of USD 70.2 and USD 96.8 per barrel. At the same time, OPEC+ production adjustments did not cause any noticeable disruptions: the news of a 2.2 million barrel production cut announced on 30 November 2023 did not provoke a rise in Brent prices at all. Today, three factors exert the greatest influence on prices: firstly, the US dollar exchange rate against leading currencies and its trend in 2025−2026; secondly, the growth rates of global production and consumption in the coming years; and, thirdly, the willingness of oil-exporting countries to intervene if prices get out of the ‘comfort zone’ for their public finances. Additionally, purely political factors could also play a significant role, although not necessarily pushing prices downwards. In particular, persistent attempts to block the actions of Russia’s ‘shadow fleet’ do nothing to calm the market, giving rise to fears of an artificial reduction in supply.
Currently, none of these factors suggest a significant decline in prices. The US dollar, bolstered by euphoria following Donald Trump’s election victory, gained 7.4% against yen, 5.5% against the euro and approx. 1% against the British pound in the course of 2024. It is believed that the situation opens up the possibility of sustained growth of the US economy and stock market and a long-lasting strengthening of the dollar, and a markedly less drastic reduction in Fed’s discount rate than previously hoped. In 2025, we should expect both the exchange rate and dreams of rapid positive change in the US economy to cool off, providing a backdrop against which the dollar could go down and the price of oil could go up. Incidentally, some signs of this scenario have been visible in recent weeks, with Brent already rising from USD 71.3−72.0 per barrel to almost USD 75 per barrel. Supply and demand projections also appear moderately positive: despite the fact that OPEC has lowered its expectations of demand growth several times recently (currently, it stands at 1.45 million barrels per day), the International Energy Agency, on the contrary, has recently raised its projection to 1.1 million barrels per day, but no one sees any prospects for a decline or even stabilisation in demand. At the same time, the prevailing consensus among analysts regarding production growth stands at up to 1.6 million barrels per day. However, after the extension of OPEC restrictions until April 2025, announced on 5 December, there is an ever stronger opinion that these restrictions will remain in place for a longer period of time. As a result, the most common forecast is that ‘the oil market will be comfortably supplied in 2025′ and with no serious price fluctuations. Forecasts now range from USD 74.5 per barrel (according to a Reuters survey conducted in late November) and USD 74 per barrel (Energy Information Administration) to an apocalyptic USD 65 per barrel (according to a Bank of America survey). While recent forecast corrections keep the downward vector, we see no reasons why credible analysts could predict prices falling not just below USD 50, but even below USD 60 per barrel.
Could any unexpected events drastically change the recent calm expectations and shuffle the cards in players’ hands? Certainly, though such scenarios remain relatively unlikely at present.
The main downward pressure on prices seems to come from the rising US production (fuelled by Trump’s repeated pledges to maximise oil and gas output) and the slowdown of China’s economy due to the potential introduction of new US tariffs. However, I am not sure, on the one hand, that a significant increase in production will happen already in the coming year and, on the other hand, that China will fail to prepare a response to the US actions. In fact, we have already seen the announcement of stimulus measures aimed at averting a possible economic slowdown, and, moreover, speculations about a possible devaluation of the yuan to support exports. Therefore, I do not think that the hyperoptimistic statements made by newly elected president will fully materialise. Moreover, Trump’s influence may also work in the opposite direction: his hints that the US is capable of taking a much more radical stance towards Iran—pledging unequivocal support for Israel if it attacks Iran’s nuclear facilities—suggest the potential for heightened tensions in the Persian Gulf, which has never driven oil prices down before.
For the stories about ‘USD 40 per barrel’ to come true, large-scale changes are needed under the current conditions. These changes will require, on the one hand, an unprecedented consolidation of efforts among a large number of players, and, on the other hand, substantial time for gradual implementation. To cause such a dramatic price collapse, supply would need to be increased by at least 5 million barrels per day. This could be achieved through: increasing US production by 1−1.2 million barrels annually for a couple of years; tapping into Saudi Arabia’s reserve capacities of 1.5−2 million barrels; boosting output in Oceania or, in the most unlikely scenario, reconciling with Venezuela and resuming investment in its oil sector to achieve a production increase of at least 1 million barrels per day. All this would have to occur without complications around Iran. Alternatively, a ‘hard landing’ for the Chinese economy could be an option, with GDP growth slowdown of at least 3 percentage points in 2025, but this scenario is not very likely, and its consequences may be too complex to realise straight-line trends: for example, a serious US pressure on China could prompt the People’s Bank of China to offload substantial oil reserves, weakening the US currency and pushing dollar-denominated oil prices higher. Moreover, we do not know how this scenario will affect the behaviour of OPEC+, which may introduce additional production cuts.
Obviously, interest in oil prices is driven by their potential impact on the Russian economy and budget. Trump himself has repeatedly claimed that a drop to USD 40 per barrel would ‘cripple Putin’s ability to sustain the war’. This is indeed true (the 2025 budget is based on a Russian oil export price of USD 69.7 per barrel (which corresponds to USD 77.5−79/barrel for Brent, or the upper limit of the EIA forecast), but only partly true. Firstly, even if oil futures began declining in February or March 2025, this will entail a real decline in foreign exchange revenues only in the second half of the year. Secondly, the Russian budget has already developed a certain degree of flexibility due to the growth of the dollar exchange rate in the domestic market. While the budget projections have a rate of 96.5 roubles to the dollar, the real figure already exceeds 103 roubles per dollar, and if the rate reaches 108−112 roubles per dollar for the year, the budget will simply not feel the drop in oil prices by USD 10−12 per barrel by the end of 2025. Thirdly, the total oil and gas revenues of the Russian budget for next year should amount to 10.93 trillion roubles, and a 30% drop in prices will cause them to fall by 2.5−3 trillion roubles, increasing the budget deficit (now planned at 1.2 trillion roubles) to 4 trillion roubles, which looks manageable against the 3.3 trillion roubles it may reach at the end of the current year. There are also other arguments, but I would like to point out that today the Russian economy can easily withstand a decline in Brent oil price to USD 58−60 per barrel, i.e. an 18−20% drop from current price levels, which is not envisaged by any current forecasts prepared by leading Western analysts. Moreover, I would be very cautious in assessing the prospects of Russian production against the background of frequent claims that new reserves are hardly explored and old ones are depleting. One should remember that, unlike the gas industry, Western service companies have not abandoned the Russian oil industry (Schlumberger continues its business, while Baker Hughes and Halliburton have sold their operations to Russian managers). Furthermore, import substitution has achieved a number of successes in the industry (again, unlike the gas sector). As a result, production remains stable compared to 2021: +2% in 2022, –‑0.8% in 2023 and about -2% in 2024 (predictions for 2025 are still premature). Russia, of course, has become the ‘sick man’ of the global economy for the next few years, but the task of maintaining oil production close to pre-war levels still looks achievable in the medium term.
The key parameters of the ‘oil industry forecast’ for the coming year can be summarised as follows. In 2025, large-scale changes in the global oil market seem unlikely (at most, some trends for 2026−2028 may begin to take shape). The global demand will grow by 1.3−1.5 million barrels per day, with supply growing by 1.5−1.7 million, which will not disturb the general equilibrium observed today. Trump’s proclamations about a leap in US oil production may generate enthusiasm but will not bring any obvious effect next year (US output will grow by 600−800 thousand barrels per day by the end of 2025). Consumption in China will continue to grow, with the Chinese economy slowing down by no more than 1 percentage point of GDP. As a result, our forecast for Brent oil price will be USD 71−73 per barrel, which corresponds to a 2−4% drop in its price from current levels, and a 10−12% decline versus the average figures for January-November 2024. This level looks quite acceptable for Russia, and the primary challenge for the Russian authorities in the coming year are to maintain the results achieved: to prevent declines in production, as officials hope, and to maintain the situation achieved by autumn 2024, when price discounts in the Indian and Asian markets returned to pre-2022 levels, and Russian ESPO oil even commanded a premium to Dubai grade in China.
Stories about a coordinated collapse in oil market prices should probably be classified as wishful thinking. Some decline in prices does not seem unlikely (nor does a price rise), but I would be cautious to claim that it will have an imminent destructive impact on the Russian economy.
