This Has Long Term Strategic Consequences

Russia's Oil Boom May Be Running On Empty -- McClatchy

MOSCOW — The Russian oil boom, which has produced a gusher of cash, political power and an opulent elite — and has helped fuel the country's renewed assertiveness in Georgia and elsewhere — is on shakier ground than officials in Moscow would like to admit.

Most of the oil produced after the country's 1998 financial collapse has come from drilling and re-drilling old Soviet oil fields with more advanced equipment — squeezing more black gold out of the same ground — and efforts to develop new fields have been slow or non-existent.

That strategy is potentially disastrous, said Valery Kryukov, who researches oil companies in western Siberia for a government-funded think tank.

"If the situation which exists now stays the same, oil production will start to decline seriously in two years," Kryukov said in a phone interview from his offices in the city of Novosibirsk.

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My Comment: Producing 9.7 million barrels of oil per day, at $115 per barrel, means that the state is bringing in (before expenses, royalties, and necessary expenditures) over 1 billion dollars a day. With such numbers, it is no surprise that Russia now has gold and foreign exchange reserves of almost $600 billion dollars.

But these current trends cannot continue. Lack of research and development, expelling or appropriating interests from foreign oil companies on an ad hoc basis, and a lack of long term planning .... what Russia earns today will be a fraction of what will be available in about ten years.

But what should concern all of us .... is that what happened in Georgia last month could be a sign of what Russia may decide to do when its oil interests and revenues become threatened. Oil revenues is the life blood of the Russian Government .... if this is in decline the Russian Government will find itself in the fight for its life. Who they will blame and who they will react to .... your guess is as good as mine.