What “surprises” will 2025 bring to Moscow?

The Resurgam Telegram channel discusses recent developments in oil prices and their implications for Russia. 

According to Reuters, Urals prices for shipments in the Baltic on an FOB basis dropped below $60 per barrel on Tuesday, with Wednesday's estimate at $59.95. Black Sea cargoes from Novorossiysk were slightly cheaper at $59.35 per barrel.

As Moscow has adapted to circumvent the oil price ceiling imposed by the US, EU, and G7, the significance of a “low oil rate” is becoming increasingly pronounced, as it directly undermines Moscow's interests—a factor that cannot be avoided, unlike oil sanctions.

Several factors contributed to the decline in oil prices:

1. Reports indicating that Israel will not target Iran's oil industry.

2. A decrease in the oil demand forecast for 2024-25.

3. Increased oil production from non-OPEC countries.

4. A systematic oversupply of quotas outlined in agreements. The OPEC+ report for October showed that in September, member countries produced 34.43 million barrels per day (b/d), exceeding the agreed volume of 33.7 million b/d, factoring in voluntary reductions by some alliance members. The most significant quota breaches occurred in Iraq (360,000 b/d), the UAE (350,000 b/d), Russia (140,000 b/d), and Kazakhstan (100,000 b/d).

5. Market experts generally predict that oil prices will continue to decline, particularly in 2025.

Why is the $50 per barrel threshold crucial? 

Many are aware that for Russia's budget challenges to worsen, oil prices need to fall below $50 per barrel. This figure is significant because, according to Rosstat, the production cost for one barrel of oil ranges between $45 and $50. If prices dip below this threshold, the oil industry will operate at a loss, rapidly depleting its working capital.

Moreover, the duration of this low pricing is essential. As discussed with an economist, for Moscow's budget to approach a “collapse,” oil prices must remain below $50 (preferably around $45 or lower) for at least 7 to 9 months. This situation, combined with factors like an overheated economy, distortion in the civilian sector, corporate over-indebtedness, poor bond market dynamics, and unrealistic budget figures for 2025, could lead to a severe budget crisis. Typically, such a crisis would necessitate external borrowing, but the financial resources required by Moscow would likely be unattainable even before February 24 (the start of the invasion of Ukraine).

The author suggests that Ukraine's diplomatic efforts should now strategically target negotiations with Canada (the fourth-largest oil exporter) and Norway, which are not part of OPEC+. The aim should be to request an increase in oil production for 2025, with Canada encouraged to open its reserves in the short term.

Collapsing oil prices in 2025 could be more strategically advantageous than further exacerbating global instability. Additionally, this shift could yield positive political outcomes for Western countries if oil revenues are curtailed for Moscow. OPEC+ seems unwilling to cut production further, especially as some member countries have threatened to withdraw from the organization if the reduction policy persists.

According to the author, oil prices should become a weapon of the free world, comparable to providing tanks to Ukraine.