Russia will have big economic problems if oil prices stay at $25 for two or three years, Russian Deputy Energy Minister Pavel Sorokin said in an interview with RBC.
The country can only survive the oil price of $25 for the next six months thanks to a flexible taxation system (about 65% of oil prices in the form of taxes goes to the budget, not to the accounts of oil companies), Sorokin said.
But if oil prices remain at $25 for two or three years, it will create great problems for the Russian economy, he explained.
According to the Russian Ministry of Energy, the price of oil will change depending on developments in the coronavirus and the volume of production on the oil market. Now the market is panicking and the price is falling to the level where the “supply destruction” begins, Sorokin said.
According to the official, measures to contain the spread of the coronavirus have cut oil demand in the United States, Europe and China by around 15-20 million barrels per day.
Sorokin said that plans by OPEC to crank up its oil production after the talks failed have put additional pressure on the market.
“We have already experienced quite a big shock due to the coronavirus,” he said. “However, we could have avoided additional shocks … from the OPEC countries’ statement that they are boosting production.”
He said if oil prices were to remain at $25 per barrel for two to three years, this would create “big problems.” He also said that Saudi Arabia had offered to sell its oil at a discount to increase its market share.
Sorokin said Europe has been stocking cheap oil and that storage facilities in the region will be overwhelmed in just over a month. Global oil production is around 100 million barrels per day.
The price of the Brent oil fell by 30 percent after Russia and OPEC+ countries failed to agree on the terms of the deal to reduce oil production on March 9. On Friday, Brent was sold at $26 per barrel.