The topic of oil is more painful for Putin now than ever before, says Alexander Kovalenko.

The topic of oil is currently more painful for Putin than ever before. Statements by Donald Trump regarding sanctions against Russia also touch upon the issue of falling oil prices. Moreover, the declarations about devastating sanctions against Russia seem somewhat separate from the discussions about decreasing oil prices. And it's not without reason.

In his inaugural speech, Donald Trump emphasized the theme of U.S. energy expansion globally, and he has never hidden that his goal is to dominate the global oil and gas market. Therefore, the policy of lowering oil prices will be pursued by the White House regardless of how accommodating and pliable the Putin regime may be.

For those who have forgotten and doubt that Donald Trump can crash the oil market, I would like to remind you of his pricing policy during his first presidential term, which led to a historic price collapse. In April 2020, Russian Urals oil fell below $14 per barrel for the first time since the 1990s, critically below production costs.

At that time, Russia was forced to shut down several of its wells, keeping only those operational that could not be closed due to critical wear, allowing either to extract until the end or to close and forget about resuming production.

Questions also arose regarding the quality of Russian oil, which recorded elevated sulfur content—1.75%, and sometimes even 1.81%-1.85%, while the maximum allowable limit is 1.8%. This pertains to oil transported via pipelines; however, for maritime transport, there were already issues with the density of the raw material, which measured 877.7-878.3 kg per cubic meter at 15 °C, while the permissible norm is 873.5 kg per cubic meter at the same temperature.

All of this indicated a degradation of technological processes and a decline in the quality of Russian oil even back then. At the same time, the number of profitable fields was also decreasing.

According to a report by the Russian Ministry of Energy for 2018-2019, oil production in Russia is expected to decrease from 11 million barrels per day to 6 million barrels per day over a span of 14 years. Thus, Russia will limit itself to self-sufficiency, stepping away from the position of "black gold" exporters.

It is possible that this degradation process is actually accelerating. For example, in the report by the Russian Ministry of Natural Resources titled "On the Condition and Use of Mineral Resources in the Russian Federation in 2016-2017," it is clearly stated that no major oil or gas fields were put into operation in Russia over a two-year period. Meanwhile, the depletion of fields in the Urals exceeded 70%, and over 50% in Western Siberia. The development of promising fields on the Arctic shelf, such as the South Prinovozemelsky, Pomorsky, North Pomorsky-1, North Pomorsky-2, Russian, West Matveyevsky, East Siberian sites, and the Kirinskoye gas condensate field on the shelf of the Sea of Okhotsk, has been halted due to a lack of technology and appropriate financing.

In 2019, an inventory of fields conducted by Rosnedra showed that their profitability was only 67%. This means that 33% of the fields were essentially operating at a loss six years ago! What do you think the situation is like under current conditions?

Importantly, Russian oil facilities—refineries—are regularly targeted by Ukrainian drones, which has already resulted in an 18% drop in Russia's export capabilities. If the strikes continue with the same intensity and effectiveness, losses in the Russian oil refining sector over the next six months will exceed 30%!

And now, against the backdrop of all the above, let’s imagine a collapse in oil prices, for example, to $45 per barrel, but not for Russian Urals or Sokol, but for the benchmark Brent. For the Russian oil industry, this would be akin to being buried alive. It's hard to imagine a more painful blow.

So, that's how it is.