Russia has fallen on hard times from the same cause as the rest of the world, but it’s different. Russia’s recent boom was fueled by artificially high, unsustainable oil prices. The high prices are also one of the major causes of the current economic crisis that has erased demand for oil and taken the air out of the speculative bubble that pushed prices so high.  The same falling oil prices have brought Russia’s economic boom to a screeching halt.

President Dmitry Medvedev said Russia may join the Organization of Petroleum Exporting Countries and reduce production to support the oil price.

“We have to defend ourselves,” Medvedev said in the Ural Mountains city of Kurgan today. “This is our revenue base, both from oil and from gas,” he said. “I believe that we mustn’t rule out any options.”

Defensive measures may include “cutting the volume of oil production and participating in existing organizations of suppliers, and in new organizations, if we can reach such an agreement,” Medvedev said in comments broadcast on state television. (Bloomberg)

My take is that Russia is not likely to join OPEC. Membership in the cartel would limit Russia’s autonomy. Both are likely to cut production, but it should not make much difference. Both OPEC and Russia need to learn that oil above $50 a barrel is not sustainable. When the price goes above $50, the profitability of most non-oil businesses declines, bankrupting their customers. It’s far better to charge your customer a bit less, allowing him to stay in business and continue buying form you rather than bankrupt him for a quick short term gain. Forecasting your spending on prices that will ultimately bankrupt your customer will also bankrupt you in the end.

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