Russia’s Central Bank Warns of Potential Oil Price Collapse Amid U.S. and OPEC Risks

Russia’s central bank has warned the Kremlin that the United States and OPEC have the capacity to flood the oil market, potentially triggering a prolonged price collapse similar to that of the 1980s, which contributed to the downfall of the Soviet Union.

The warning, issued in a classified presentation prepared for a discussion chaired by Prime Minister Mikhail Mishustin in February and reviewed by Reuters, came just weeks before Russian President Vladimir Putin and former U.S. President Donald Trump opened negotiations to end the war in Ukraine. Trump has made clear that he could impose further sanctions on Russia should a peace deal fail to materialize. Additionally, he has pledged to boost U.S. oil production and urged Saudi Arabia, OPEC’s de facto leader, to increase output in an effort to support the global economy.

While the central bank’s report did not specify the exact circumstances under which the U.S. and OPEC might flood the market, nor the likelihood of such a scenario, it marked the first time the bank has explicitly detailed how a prolonged period of low oil prices could develop. Previous reports have flagged oil price fluctuations as a risk to Russia’s economy, but none have been this direct in outlining the potential for a repeat of past crises.

The economy ministry also presented its own findings at the meeting, highlighting additional risks such as declining investor activity, rising costs, and the accumulation of “bad debts.” However, there are no immediate indications that OPEC is planning to alter its supply policy in a way that would significantly increase global output. While U.S. production may rise, much of the additional supply is expected to come from non-OPEC producers such as Brazil, Guyana, and Kazakhstan, where oil majors are ramping up production.

“A significant risk is the oil price,” one slide from the presentation stated, listing “a significant increase in production in the United States and outside OPEC” as a major concern. The presentation also noted that OPEC’s spare production capacity is currently near record levels, equivalent to Russia’s total crude oil exports.

“Historical precedent – after the period of high oil prices in 1974-1985, 18 (!!!) years of low oil prices,” the slide warned, using three exclamation marks for emphasis.

For Russia, the world’s second-largest oil exporter, energy has long been both a source of strength and vulnerability. Since the Soviet Union’s discovery of vast hydrocarbon reserves in Western Siberia after World War II, oil revenues have allowed the Kremlin to stabilize the economy and finance geopolitical ventures, from Cuba to Angola and Vietnam. However, when prices plummeted, the economy suffered severe consequences, none more significant than in 1991, when the collapse of oil revenues helped precipitate the dissolution of the Soviet Union.

The oil price crash of the 1980s left Moscow unable to compete with the U.S. in the arms race, worsening its financial troubles and accelerating the Soviet collapse—an event that Putin has repeatedly called a tragedy.

At present, oil prices hover around $70 per barrel, a level that is considered manageable for Russia, which has based its budget on an assumed price of $69.7 per barrel. However, economist Igor Yushkov of the Financial University under the Russian government noted that the central bank’s concerns stem from a combination of low oil prices and a strong rouble.

“The budget is probably not doing well, because it is already the end of March, and we are not meeting the budget parameters that were planned for 2025,” Yushkov explained.

Russia has endured multiple financial shocks due to oil price declines since the Soviet collapse. In 1998, the country defaulted on its foreign debt when prices plunged to $10 per barrel. In 2008, Moscow was forced to tap into its fiscal reserves to stabilize the economy amid falling oil prices caused by the U.S. subprime mortgage crisis. More recently, steep price drops during the COVID-19 pandemic posed a challenge, though their short duration prevented a severe economic test for the Kremlin.

Putin recently discussed the state of the oil market with Saudi Crown Prince Mohammed bin Salman, reaffirming the importance of the OPEC+ production agreement for maintaining stability.

“The commitment of Russia and Saudi Arabia to comply with the obligations assumed in ‘OPEC Plus’ was emphasized,” the Kremlin stated in its readout of the conversation.

According to estimates from the International Energy Agency (IEA), OPEC’s total spare capacity—unused production that could be quickly brought online—stands at approximately 5.3 million barrels per day (bpd), a figure nearly equivalent to Russia’s total oil and fuel exports.

Saudi Arabia, which is currently producing around 9 million bpd, has signaled that it could ramp up output to its maximum capacity of 12 million bpd within months if necessary, further reinforcing concerns about the potential for a new oil price collapse.

By fLEXI tEAM