‘I think oil price will be reducing, and rise in price will start from the second half of the year…’

'They calm us down saying the reserves are big. But I think this year we will 'eat' them and it is unclear what happens next'

Renat Muslimov – consultant of the President of the Republic of Tatarstan on issues of elaboration of petroleum and petroleum and gas fields, member of the board of directors of Tatneft:

'Russia lives on petroleum, it is impossible to create import substitution for a short period. The situation is getting worse, to tell the truth, we move by inertia, and most population goes on living on the same level. Oil prices never were stable. There are cycles when the countries buy petroleum, the price reduces, there are no investments, due to no investments, extraction decreases, and then the prices rise again. This recurrence existed and always will exist. But today's situation is unusual because usually if we launched a couple of rockets upwards, oil price would up. And here there is a war, oil price is falling. It is illogical. Why does it happen? Today other forces interfered – a fight between Saudi Arabia and the USA, first of all, it is a fight for the markets. Saudi Arabia is dumping suddenly reducing oil prices. Americans were the leading shale oil extractor but its extraction was more expensive and technologically difficult. If oil price were higher, American would be on the first place. However, Saudi Arabia has large reserves among all the countries. This is why it is dumping not only to cement its positions but also to increase its share. They already lost 150bn in their budget in this business. Even they cannot continuously lose.'

Renat Muslimov: 'It cannot be argued with those who say there prices will be forever or for 5 years owing to the fact the world is cyclic – if there is a crisis, there are rises. Americans had been counting from the Great Depression and figured out the crisis ends in 8 years on average. So was it. And here the House of Saud's fight for markets interfered. As soon as they recover the markets, they will raise the prices'. Photo: salympetroleum.ru

'It is a fundamental factor, but still there is a speculative price. Let's imagine if a tanker goes to the United States from the Persian Gulf, which was bought by them, the petroleum, which will be delivered during several months, is resold 50 times on average. The petroleum is in the tanker, no one sells it physically, but on paper, it is sold about 50 times. I suppose the price will be reducing, and there will be a rise in prices from the second half of the year. By the end of the year, we probably reach 50. Then we will recover, the price will be at 100, not in this year, of course. It cannot be argued with those who say there prices will be forever or for 5 years owing to the fact the world is cyclic – if there is a crisis, there are rises. Americans had been counting from the Great Depression and figured out a crisis ends in 8 years on average. So was it. And here the House of Saud's fight for markets interfered. As soon as they recover the markets, they will raise the prices. I opine the situation will change during 2-3 years and the price will exceed 100 and reach 150. It should be remembered in 5 years 200 will be equal to today's 110-120.

All enterprises and sectors will suffer, exclusive of petroleum workers who will cope with it because their balancing is good. They invest money in rubles in development but sell a part of petroleum in dollars. Weakening ruble is to their advantage, in another case, they would stop the extraction, but now they continue extracting and even increase it. The weaker the ruble, the better the conservation of these extraction levels. The others will suffer. They calm down us saying the reserves are big. I think we will 'eat' them this year, and it is unclear what happens next.

When Nixon was the president, petroleum increased tens of times, the power headed by Brezhnev could create a 150bn money box. But they did not do it, so Yeltsin had to live with a begging bowl and ask for just 10bn during the Perestroika. They used them incorrectly: instead of the creation of reserves, they gave them to our friends who became our enemies – Eastern Europe countries.

Renat Muslimov: 'Nowadays we cannot count on reserves only. We need to work and look for the ways for import substitution. We should live within our income and produce ourselves, first of all, food.' Photo: kolpinonews.ru

Nowadays we cannot count on reserves only. We need to work and look for the ways for import substitution. We should live within our income and produce ourselves, first of all, food. Undoubtedly, the defence should be invested. In the 90s, it ended relatively quick, there was not such a confrontation because Americans had not a chance to increase the extraction in their country. At that moment, they consumed 900m per year while extracted 3000m tonnes. The period of low prices took 6 months or less. Today there is a fight for the markets. Iran's entrance plays a major role as well.'

'From my point of view, Saudi Arabia doesn't endure it'

Ivan Grachev– deputy of State Duma:

'For the Russian economy, which has had a $200bn trade surplus since last year, it is not critical. As for reserve, Russia does have it, which is annually created. If we speak about 1-1,5 year, it is a short-term turning on low oil prices, it is not critical.

We just need to manage correctly the reserves and Russia has the plus of the balance of trade. By the way, last year, it was enormous. The President said $125bn for 6 months. If this story were really long, for instance, it took tens of years or 5 years, from the management point of view, the situation would be more difficult. As I think, it is an unintelligent management of the ruble rate, with key rate and tax manoeuvres. The rest for Russia is not critical.

Actually, prices were to grow in autumn because the offer exceeds the demand – only about 2m barrels per day (b/p). In the United States of America the production reduced by 500 barrels of shale oil per day, according to my data, and even more. Demand grew by about 1,5m b/p – there was no global crisis, as it was expected. Last year's 3,5% is a fairytale. The surplus of offer almost absorbed. But by the end of the year, Saudi Arabia added one million barrels more per day, although it doesn't refer to the market; it is just military actions at the front against Russia. How long can they endure these artificial oil prices?

Ivan Grachev: 'As I opine, Saudi Arabia already cannot bear these prices. It lost its nerve. Now it cannot find a way out of the situation naturally. This is why, from my point of view, it is a short-time matter. I'm convinced this year oil prices will grow.' Photo: actualcomment.ru

As I opine, Saudi Arabia already cannot bear these prices, if not, it would begin to execute people and bombard Iranian embassies. It lost its nerve. Now it cannot find a way out of this situation. This is why, from my point of view, it is a short-time matter. I'm convinced this year oil prices will grow. They can make the price reach its prime cost under pulsed conditions with the intention of getting into panic. They, I fact, are waiting for it. They reduce oil prices, and at the same time Russia is engaged in the expanding military crisis. Then they play havoc through our government saying they will shave prices and restrict the pensioners. This way they count on a short-time effect on the economy and people's psyche.

In the 90s, the crisis lasted for quite a long time. One of them was connected with the global crisis, when there was a fall in demand for oil. Today it is not falling but growing, so there is no fall in demand for oil in the world. Russia has no foundations to repeat the scenario of the 90s. At that time, dumping was used against the Soviet Union with the help of Saudi Arabia, but today's possibilities of Saudi Arabia and those it had are not compatible. As for extraction, they are about to enter the period of falling extraction as Tatarstan did in the 80s. Moreover, their budget was coded at $20 a barrel, while it is at $90. In this sense, they won't be able to maintain the artificial prices.'

'As a result of the fall in oil prices, the consumer market is reducing too. There is a tension around the issue of sales.'

Marat Galeyev– deputy chairman of the Committee on economy, investments and entrepreneurship of the State Council of the Republic of Tatarstan:

'These changes for the Russian economy are critical because the falling prices in the world market reduce the portion of payments to the federal budget through customs duties. And they are quite important. Consequently, for the Russian budget it is directly linked with the fall in income. Properly speaking, now the federal Ministry of Finance is sequestrating the budget by 10% on the grounds that oil price is much lower than the forecasted annual average price at $50/barrel.

Marat Galeyev: 'I would lift the sanctions imposed by us, especially on food because sanctions on foodstuffs provoked the rise in prices. And the rise in prices reduces solvency. Taxation regime on everything should to be equally alleviated. We should ban the imposition of the new payments and taxes and forget the existence of the word Platon. Photo: gossov.tatarstan.ru

It does not have a direct impact on Tatarstan because the most part of the tax of oil price goes to the federal budget. It does not affect directly but has an indirect impact, undoubtedly, because the financing of the federal programs is reduced. What should we do? We should keep working on the structural reconstruction. Tatarstan is working in this area. In 2014-2015, we implemented new factories in the petrochemistry where we observe a serious win – compensation by dint of the falls in other sections. So, the tax on income is 20% higher than it was expected. We should continue the structural reconstruction regardless of its difficulty.

As a result of the fall in oil prices, the consumer market is reducing too. And there is a tension around the issue on sales. However, the market needs to readjust: to reduce costs, increase the competitiveness, including by import substitution. There are no miracles here. Everything has been declared, but the declaration is to be realized. If someone acts, there are those who just talks. Tatarstan acts, so for a while the results are fine. The President set a task to maintain the stability of the economy in any situation.

$25 a barrel will be a critical price for the republic and Russia. Although I think if the price reaches this quantity, it will last just for some time. It is important to overcome it. I would lift the sanctions imposed by us, especially on food because sanction of foodstuffs provoked the rise in prices. And the rise in prices reduces solvency. This is why our sanctions should be liquidated first, may it be done in a one-way fashion. Taxation regime on everything should be equally alleviated. We should ban the imposition of the new payments and taxes and forget the word Platon. It is my point of view, but I think it would be beneficial for the economy. But these decisions are not made in Tatarstan.

As for the crisis in the 90s and its reappearance, it should be remembered that 25 years, a quarter of a century, have passed since that time. One dollar in 1990 and one dollar today are different things. So, today's $25 can correspond to 10-12 dollars in the 90s. The purchasing power of today's dollar differs from the dollar in the 1990s. Consequently, it is not correct to compare these occurrences.

Marat Galeyev: 'One dollar in the 1990s and one dollar today are different things. So, today's $25 can correspond to 10-12 dollars in the 90s. The purchasing power of today's dollar differs from the dollar in 1990s. Consequently, it is not correct to compare these occurrences.' Photo: vladtime.ru

According to an agreement in 1994, we had more power than now. Taxes on fields of weak profitability were reset according to a law on oil and gas adopted in the republic at that time. In essence, we lost no oil well. A huge number of wells closed in Russia, and there was a fall in petroleum extraction 1,5 times, while in Tatarstan it was stable owing to the working oil wells. This law existed till 2000, until a new whorl of price growth, but it played a positive role. It represented those concrete legislative actions of Tatarstan that saved the employment and extraction. But I emphasize we had the power to adopt such laws.'

'In some trading sessions, the price will probably drop to $20 a barrel'

Vadim Khomenko– corresponding member of the Academy of Science of the Republic of Tatarstan, Doctor of Economic Sciences:

'It is critical not only for Tatarstan and Russia but also for petroleum extracting countries in general. It had been said the lowest bar of petroleum price fall was $25 a barrel. It is about the financial stability of a company. Even Arabian countries stated their budget was calculated for $40 a barrel. There had being formed a huge deficit in the budget of Saudi Arabia, etc. It means the low bars in budget terms are behind, including for us. Now we have to cut the budget of Russia and Tatarstan out because the Russian one presupposed $40 a barrel and the budget of Tatarstan — $60 a barrel. These bars are behind, and we feel a deficit in funds in budget formation terms. The profitability of companies themselves will be a problem in the future.

The consequences: petroleum industry, undoubtedly, will suffer. We look at those countries that wanted to enter the market, for instance, like Iran. The country presupposed huge investments but now the investments are suddenly reducing. The expansion of further petroleum extraction is unprofitable because petroleum on the markets is in surplus.

From the other side, if our economy depends on petroleum, the relationships of dollar and ruble rates is not to our advantage. We see the dollar reaches 70 rubles. It results in import appreciation, appreciation on the market, and so we see a reduction of purchasing power, real, not nominal, income of the population falls, and the chain reaction transfer to practically all enterprises and organizations. It even touches tourism, when international tourism is not profitable, and industrial companies, exclusive of the sectors that initially were oriented to the domestic market. All in all it orients us to the localization of the production. And some enterprises in agricultural machine building and pharmaceutics – they managed to reorient to the domestic market to some measure – but not all companies are capable of it. There are difficult productions that depend on imported technologies and components. In the end, we observe a mass reduction of production volumes.

Vadim Khomenko: 'The situation is difficult. Anyway, there is no such thing that only one petroleum extracting country is at an advantage. It can be said they are waiting for that one of the players doesn't endure and leaves the market.' Photo: elitat.ru

In the 90s, one barrel cost 6-7 dollars. At that moment, it caused impossibility of the formation of the Russian budget. Then Saudi Arabia raised oil price again – it is a calculated step. As a result, this policy harms Saudi Arabia too. Their deficit is about $100bn, but they do it to their detriment and continue doing it. The goal is clear – to the own detriment but to the greater detriment of their opponents. They start dumping, in fact, in order to get rid of the rivals. The situation is difficult. Anyway, there is no such thing that only one petroleum extracting country is at an advantage. It can be said they waiting for that one of the players doesn't endure and leaves the market.

The low bar of oil price is observed by specialists. In some trading sessions, the price probably will fall to $20 a barrel. Consequently, there will be a rebound as a result of the sudden reduction of investments in extraction in the economy. It will bring to a fall in extraction volume that will correct oil price. It will happen without any doubt on the grounds that now we see a steep drop in investments in the petroleum sector. As another variant, oil price will augment if one of the petroleum extracting countries runs into a profound economic crisis. Then the price will be raised by someone's help because this problem to some extent has been solved.'

'In the 90s, even wells in Tatarstan stopped. Extraction was unprofitable'

Rafael Khakimov – vice-President of the Academy of Sciences of the Republic of Tatarstan, director of the Mardjani's Institute of History of the Academy of Sciences of the Republic of Tatarstan, director of Kazan Institute of Federalism NPO, deputy of the Fourth State Council:

'To what extent is this price critical? It is critical because petroleum prime cost in Russia is high. It is already in the fourth stage. It is difficult to extract petroleum due to the fact that the petroleum contains sulphur. We send it for conversion, it is what saves us. The factories like Taneco are excellent, so they convert 90%. It saves us, we sell only a half of crude oil. As for Russia, the fields, which are not as difficult as those in Tatarstan, are situated far. It causes problems of transportation and large overheads. We have a monopoly – Rosneft and Gazprom. When there is no competition, there are large overheads, roughly speaking, administration.

'Rafael Khakimov: 'Apart from the USA and its shale oil, Russia will suffer too. The country will be eliminated, so $25 a barrel is a real thing. Some people say $20 are possible too, but I think it will last for a short period.' Photo: Maksim Platonov

For Russia, which has a high petroleum prime cost the fall in prices is not critical. Here drop in ruble is a helping hand. Due to the instability of the ruble, it turns out the ruble equivalent is not bad while selling cheap petroleum. The budget is held on it.

Consequences? Speaking about Tatarstan, Tatneft did not suffer much, though everything brings to it. As I had said, we transferred to conversion in the 90s. We have a lot of production for export – about 50% – and it helps us. The revenue is in dollars, it explains why Tatarstan is fine in the ruble equivalent. The republic won't suffer much while Russia will.

Petroleum price forecasts: in the 90s, petroleum price was 10-12 dollars. Even wells in Tatarstan closed. Extraction was unprofitable. Now petroleum price really can fall to 25 because this price is not critical for OPEC countries. It means in this situation they are making a profit and getting rid of their rivals who are in a critical situation. And it is critical for American shale oil, though they invent new technologies quickly, literally in a year, hence the prime cost there is falling and effective enterprises are washing away the ineffective ones. Apart from the USA and its shale oil, Russia will suffer too. The country will be eliminated, so $25 a barrel is a real thing. Some people say $20 are possible too, but I think it will last for a short period.Consequences? Speaking about Tatarstan, Tatneft did not suffer much, though everything brings to it. As I had said, we transferred to conversion in the 90s. We have a lot of production for export – about 50% – and it helps us. The revenue is in dollars, it explains why Tatarstan is fine in the ruble equivalent. The republic won't suffer much while Russia will.

I will come back to the topic of the slump of prices in the 1990s, when regions closed, there were customs points throughout Russia, food was not exported, barter was present, it all ended with a default. Rubles were available in Perm, one went there by plane. Machine tools were sold in Perm and Moscow. Tatarstan received them from Perm. People got there by plane and took them hot.

Rafael Khakimov: 'Now for Russia there will be a structural shock, structural changes will be needed. These changes cannot be made within 2-3 years. <> Modernization needs machine tools. And for the last five year, there was a threefold appreciation. It may bring Russia to deindustrialization.' Photo: Maksim Platonov

What is the difference of today's crisis from the crisis of the 90s? Now for Russia there will be a structural shock, structural changes will be needed. These changes cannot be made within 2-3 years. If 1996 was our starting point, we started to live more or less fine, the dependence of the budget on petroleum is about 23% while it was 60%. It took 20, so Russia cannot execute the structural reconstruction quickly. Moreover, for this intention, resources will be needed, and the sanctions give neither money nor technologies. Tatarstan should follow the same path quickly. There is only one danger – no slump of the ruble. While for export it is good, it is not for import. Modernization needs machine tools. And for the last five years, there was a threefold appreciation. It may bring Russia to deindustrialization.'

'I was surprised when a 90-years-old granny called me and said: „I worry too much, a barrel costs 35 dollars'

Shamil Ageyev– chairman of the Chamber of Commerce and Industry:

'In recent years, we are talking about petroleum prices only. I was surprised when a 90-years-old granny called me and said: 'I worry too much, a barrel costs 35 dollars'.

When it cost $50, a dollar cost 33 rubles. Multiplying, we have about 1700 rubles a barrel. Now a barrel costs $30 and a dollar is 75 rubles. Multiplying, we get 2,500 rubles. The change of the dollar has even a positive impact on our budget, only equipment became expensive. Until we know how to do simple things like in Iran, nothing will change. What forecasts are we talking about when there is a big political game? The same thing happened during the dissolution of the Soviet Union. We should develop import substitution. Now we are trying to make Entrepreneurship Support Fund. The banking sector needs attention because the real sector finds very difficult to take out a loan. We should look at the real production: Ammonia was launched, work in Khimgrad is carried out, and there is a renascence in aircraft engineering.

Can a barrel cost 10 dollars? In reality, whatever may happen. The most important thing is that the sun rises, your relatives are fine, other things are rubbish.

Shamil Ageyev: 'The change of the dollar has even a positive impact on our budget, only equipment became expensive. Until we know how to do simple things like in Iran, nothing will change. What forecasts are we talking about when there is a big political game?' Photo: express-job.ru

Could the situation of the 90s repeat? At that time, there was a large reserve of stability and strong productive potential. In Russia from 1929 to 1939, there were launched 90,000 enterprises. In Tatarstan from 1975 to 1985, there were launched 2,000 enterprises. In addition, the youth preferred the technical universities. It wanted to use its hands, for this reason, they were more prepared. Now the youth is also prepared, it will face a new situation. The different situations cannot be compared. What is more, in the 90s, there was an upsurge in entrepreneurship. Now the administrative press affects it. It seems the deputies just want to ride herd on the entrepreneurs, not to mention the rest. It is what need our attention, not the price for a petroleum barrel.

Rescuing the drownings is the matter of the drownings themselves. Let people work and find points of application.'