Russia's declining oil production: Managing price risk and rent addiction

Two prominent American specialists on the Russian economy re-examine two key political explanations commonly advanced for the slowdown in Russian oil production after 2007, namely the high tax regime and increasing state control. The authors' objective is not to question the validity of these explanations, but rather to argue that the outcome (i.e., the slowing rate of oil output and revenues derived from it) was an intentional response to rising world prices rather than an undesired, negative consequence of Russian policies. More specifically, the authors outline the elements of a Russian strategy designed to avoid: (a) the launching of long-term investment programs in a high-oil-price environment, in which future world oil prices and the costs of lifting "new" East Siberian crude cannot be reliably predicted (thereby reducing price risk) and (b) expenditure of windfall profits to support noncompetitive enterprises in other sectors of the economy (curbing rent addiction).