Oil

   Russia is the largest producer of oil outside of the Organization of the Petroleum Exporting Countries (OPEC) and currently the secondlargest producer after Saudi Arabia. Recent declines in Saudi production contrasted with steady gains in Russia since 1998 suggest that the latter will soon regain the leadership position (the Soviet Union was the world leader from the late 1970s until 1991). However, Russia ranks only seventh in terms of proven oil reserves, so such a peak will only be temporary. Globally, Russia produces 12 percent of oil and accounts for the same figure in terms of exports. Russia exports 5 million barrels per day, as well as 2 million barrels per day of refined petroleum products.

   Russia’s major fields are located in the Volga-Ural region, the North Caucasus, Timan-Pechora in Nenetsiya, and western Siberia; a new field is being developed in northern Sakhalin. Due to its vast geography and the legacy of Soviet-era transshipment routes, Russia is also an important transit country, particularly for oil sent from Kazakhstan to European markets. The state-owned firm Rosneft is Russia’s largest petroleum company; the company purchased Yukos’s assets after they were seized by the state, thus surpassing Lukoil. Other major companies include TNK-BP, Surgutneftegas, and Gazprom Neft.

   Established by presidential decree in 1992, Transneft is the stateowned firm that controls Russia’s nearly 50,000 kilometers of pipelines. The Russian economy is highly dependent on oil and natural gas exports. Rising prices during the 2000s led to a markedly improved economic situation in the country as well as strong popularity ratings for Vladimir Putin. High demand has also allowed Russia to expand its exports in recent years as rail and river shipments have become more cost effective.

   The European Union (particularly Germany and Poland) and other European states serve as the main market for Russian oil exports. Most of this oil is shipped via the 4,000-kilometer Druzhba (Friendship) pipeline, which passes through Belarus (northern spur) and Ukraine (southern spur), though a percentage is transported from the Far North to the Baltic Sea via the Baltic pipeline. In recent years, China and Japan have also become major customers. Prospective pipelines from the Siberian oil fields to East Asia have become critical political issues in bilateral relations and have impacted Russia’s domestic politics as well (particularly vis-à-vis the oligarchs).