Dmitry Litvinovich: Oil dollars and budget deficit

Today negotiations between Russian President Vladimir Putin and Venezuelan President Hugo Chavez took place. Venezuela is now OPEC chairman, so Chavez came to discuss with Russia the reduction of the extraction and supply of oil to the world market. Today’s situation with oil prices is almost critical. Already for 20 days, oil prices have not exceeded $19.00 a barrel. According to the cartel agreement, oil production is to be automatically reduced by 500,000 barrel a day if the price is higher than $22-28 for a barrel. Taking into account this situation, the Venezuelan president’s visit is not casual. The Venezuelan economy as well as the Russian economy seriously depends on oil prices. The urther reduction of prices could cause an economic crisis with unpredicted consequences. To fix the price at a certain level, oil extraction should be reduced, which will seriously influence Western economies and could allow the countries not belonging to OPEC (Russia, Mexico, Norway) to increase oil extraction and redirect customers to themselves. OPEC considers this decision to be wrong, so it came to the idea of an agreement with these countries about reduction of oil extraction. “Russian ensures four percent of the world’s oil market. And we must reduce production to increase their incomes," - Mikhail Delyagin, director of the Globalization Institute, outrageously says. Such a cynical wish to solve one's problems at the expense of another should not be commended. The reduction of oil extraction will automatically cause a budget deficit that Russia cannot afford itself. According recent information, OPEC countries did not ask about the reduction of oil extraction and supply. This was reported by foreign minister Igor Ivanov. The minister also said in the middle of November that an extraordinary OPEC session will be carried out where decisions about volumes of oil extraction and supply will be taken. According to Ivanov, the reduction of oil extraction and supply could be possible within the framework of these decisions. These questions still remain the subject of discussion. Speaking about energy resources’ prices, Ivanov stressed that the “cost corridor” remains without changes. At the same time, the minister assumed it could change after the session, so Russia should coordinate its oil policy with OPEC.