Is FSU oil growth sustainable?

The oil revenues, on which most OPEC countries so heavily rely, depend on the interaction of price and volume, which have fluctuated widely. At times of low price, OPEC governments face the dilemma of cutting production to support price or of using volume to deliver their needed revenues.

The onset of recession in response to the high oil prices of 2000 underlines the fact that the World’s economy runs on energy and is vulnerable to price fluctuations. Oil price has been volatile, swinging from $10 to $30 a barrel over the past four years. OPEC did succeed briefly in providing much-needed stability under its declared policy of holding price in the 22-28 $/barrel range by the better enforcement of agreed quotas, but geopolitical pressures, following the 11th September, led it to allow the price of oil to fall.

A new element entered the equation when OPEC sought support from non-OPEC countries, especially Russia, which had its own agenda in its relations with the United States. Although Russia’s production costs are comparable with those of the US-48 in real terms, an adverse exchange means that its exports can undercut OPEC.

Published in: Petroleum Review 56 (April 2002), pp. 29-31, 35.
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