Weekly pageviews of "Resource Crisis." My blog seems to be having a remarkable success in Russia, but do the Russians understand the problem of resource depletion?

Complex structures, such as states and empires, are always prone to collapse and they usually give little or no previous warnings. The collapse of the Soviet Union, indeed, had not been predicted by anyone and it came completely unexpected. In the present crisis, instead, Western analysts seem to have fallen in the opposite mistake, predicting the rapid demise of the Russian Federation. But that didn’t happen. On the contrary, the Russian economic system showed a remarkable resilience and it strongly rebounded after a bad moment, last year. (image below from Bloomberg).
 

So, predicting collapses is always very difficult in a world’s situation that looks more and more like a Russian Roulette (an appropriate name in this context), but played with nuclear weapons. It might well be that some states which at present look very solid could be the ones to experience a sudden and unexpected Soviet-style implosion (let me not say which ones these states could be).

Let’s go more in depth in this matter. The collapse of Russia was expected in the West mainly as the result of the recent crash of the world’s oil market. That repeated the situation of the late 1980s, when the old USSR was bankrupted by a similar effect: a rapid fall of oil prices which strongly reduced the revenues from oil exports. However, the present situation is not exactly the same. The main difference is related to the perspectives of the oil market. In the 1980s, low oil prices were generated by new oil fields entering the market after the first oil crisis – for instance the North Sea. The supply increased and prices collapsed around 1985 at levels that today we can’t even dream any more – around 20$-30$ in current dollars – and they remained there for nearly two decades.

Today, there is no equivalent of the new resources that had entered in production in the 1980s and the price collapse has been generated mainly by a demand slump. Additionally. what we call today "low prices" are at least twice as high (in current dollars) than they were in the 1980s. And these "low" prices are bankrupting the whole US tight oil industry. That can’t be without effect in bringing back oil prices to the levels which were considered "normal" up to last year. Consider also that Russian production costs are not the highest in the world, as shown in this figure

The values shown in the figure are very uncertain but, as long as oil prices do not fall below US 40 $, Russia should be able to survive; and they seem to be doing exactly that. In the short term, at least, the "oil weapon" that some analysts saw as unleashed against Russia, failed to obtain its purpose.

Certainly, however, the question of the long term management of the Russian mineral resources cannot be ignored. There are elements indicating that Russia’s oil production is peaking this year and, according to Ron Patterson, USA and Russia may peak together. How would their respective economies react to that? More in general, how will Russia manage the unavoidable long term depletion of the country’s resources? What do the Russians want to do with their mineral wealth? Who is going to use it and for what purpose? Planning on the basis of the fundamental elements of thedepletion process (*) would be the best for Russia to avoid a future resource crisis.

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(*) The problem of oil depletion is very poorly understood everywhere in the world, but, according to my personal experience, it may be that it is even less understood in Russia. For instance, over more than a decade of existence of the Association for the Study of Peak Oil (ASPO) there have been many national chapters (including ASPO-Italy). However, there has never been an ASPO-Russia (if you google for "ASPO Russia" you’ll find the Astrakhan Shipbuilding Production Association, which is not exactly the same thing!). 

Russian oil pipelines teaser image via shutterstock. Reproduced at Resilience.org with permission.