General Situation of Russia:

Russia is the world’s second largest oil-producer and it holds the seventh largest oil reserves in the world. At the current level of production and provided that the estimation of reserves is correct, Russia’s oil reserves will last for about 22 more years.

As the output growth from Russia's main oilfields in western Siberia begins to slow down, Russia has to tap new resources in the coming years.

In summer of 2007, Russia claimed a part of the Arctic Ocean the size of Western Europe, arguing that the North Pole is an extension of the Russian coastal shelf. The ocean is home to vast oil reserves. Apart from Russia, several nations (e.g. Canada and Denmark) stake justifiable claims – the issue remains to be settled.

In August 2007, Russia made significant cuts to oil supplies sent to German refineries without giving any explanation and, therefore, revived concerns over the reliability of Russian energy supplies.

In-depth analysis:

The results of ineffective central economic planning in the Soviet Union were a difficult legacy for Russia’s economic transformation and still today, Russia suffers from its scarcely diversified economy. Russia’s economy still is highly dependent on the exportation of oil, gas and natural resources and to a large extent, the economic growth of the past years has been fuelled by rising oil-prices. Furthermore, infrastructure needs investment, Russia's manufacturing base is dilapidated and the banking and finance sector is underdeveloped.

Russia has to tap new oil fields soon. A significant part of its remaining reserves are to be found in territories with difficult conditions of production (e.g. east Siberia, which has a poor infrastructure, an extreme climate and a difficult geography). Some analysts argue that Russia requires foreign capital to develop oil production in this region. However, in recent years the Russian government has made it more difficult for foreign investors to gain access to reserves.

Since the government's dismemberment of the oil company Yukos in 2003, Russia’s government has increased its influence in “strategic” sectors of the economy like oil and gas, energy and high-tech. It is doubtful whether Russia will manage the transition to the beyond oil age without the contribution of foreign investment and technology.

Furthermore, the weakening of democratic structures under the current government, the high level of corruption, recent restrictions to media freedom and Russia’s low energetic efficiency (Russia consumes about one third of its own production of oil and gas) are subject to criticism.

To improve the beyond-oil preparedness, Russia should increase energetic efficiency, reduce political and legal insecurities, diversify the economy and strengthen the development of future industries.

Sectors of particular interest for mid-term foreign investment are the growing transport, construction, electrical engineering and chemical industries as well as finance and banking. In the talks on WTO accession, which is expected for 2008, Russia promised to liberalise its finance sector.

Beyond oil preparations:

Russia has not taken any special precautions for the beyond oil age. In 2004 it set up the so-called Oil Stabilization Fund which serves to reduce the vulnerability to volatile oil prices and is financed by tax-revenues that come from the oil sector. By the end of last year, the fund was worth more than 2300 billion Roubles (approx. 91 billion US$) and part of it has been used to pay off Russia’s foreign debts. Out of fear from corruption and inflation, the Russian government has not used the fund for domestic expenditure yet. However, spending at least part of the money is discussed and it seems that – in contrast to Norway - concerns about intergenerational solidarity are of minor relevance for Russia.

Beyond oil summary:

The problems related to its economic structure are a major reason for Russia’s low score in the beyond oil index. Furthermore, at the current level of production, its oil reserves will not last particularly long. In spite of this fact, the country does not seem to take any special preparations for the beyond oil age.