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Oil Prices Stable as Dramatic Events Unfold in Russia, With Putin Holding On to Power

Analysis by Energy Workforce President Tim Tarpley

Energy Workforce President Tim Tarpley

In scenes that were reminiscent of the first chapter of a Tom Clancy spy novel, a series of dramatic events took place in Russia last week, events that will undoubtedly have dramatic and far-reaching implications for the world and especially the oil and gas markets for years to come.

The drama began after Yevgeny Prigozhin, the president of the Wagner paramilitary group that has contracts to operate in Ukraine and other locations around the world on behalf of the Russian government, claimed that Russian armed forces had attacked a Wagner camp in eastern Ukraine after Wagner refused to sign a new contract with the Russian government to fold into the regular military forces.

After the attack, a group of Wagner mercenaries led by Prigozhin drove across the border from Russia into Ukraine and occupied a military headquarters building in Rostov, Russia. The group faced little-to-no resistance crossing the border or occupying the city. Then, in perhaps the most stunning action we have seen in Russia since the collapse of the Soviet Union, the convoy began to move at a rapid rate towards Moscow itself.

On the way, reports indicated the convoy shot down a number of Russian military helicopters and a surveillance plane, likely killing between 15-30 Russian regular forces. Police and military surrounding Moscow made last-minute barriers and barricades out of sand and garbage trucks in an attempt to slow the invasion. When the group was only around 150 miles from Moscow on Saturday night, a hasty announcement was made by Prigozhin that he had struck a deal with Aleksandr Lukashenko, President of Belarus, to withdraw his forces and for himself to receive amnesty in Belarus. The invading forces then turned around and retreated back across the border towards Ukraine.

This week, reports about the location of Progozhin and his army are unconfirmed, but one thing has become clear: Vladimir Putin is now facing the weakest point of his long presidency of Russia. The fact that there was little-to-no resistance to the group on the ground by Russian border guards or Russian regular forces suggests there is significant disorganization or perhaps dissension within the ranks.

If, and how long, Putin can hold together his power structure is unknown. History has shown it’s a bad bet to underestimate Putin’s resiliency, but we are truly in unchartered waters.

On Monday, Putin gave a calming speech to his nation and said any Wagner forces who wished to move to Belarus would be allowed to — otherwise they would have to choose to fight with the regular Russian army or disband. Time will tell how this all unfolds, but much uncertainty remains.

So far oil prices have held steady, but if the situation continues to destabilize that could change dramatically. Russia’s oil and gas exports remain sizeable despite Western sanctions, with Russia-origin seaborne crude exports averaging 3.87 b/d in May which is the highest since the Ukraine invasion. The exports are actually 25% higher than pre-war levels of 3.1 million b/d, with 80% of exports going to China and India. Should instability in Russia cause disruptions to their exports to China and India, those countries will have to look to the open market to satisfy their significant oil demands.

In 1939, Winston Churchill defined Russia as “a riddle, wrapped in a mystery, inside an enigma.” His words couldn’t be truer today. No analyst really has any idea how this is all going to play out and neither do I. However, given the important role that Russia plays in both foreign policy and the oil and gas markets, all of us in the industry should pay close attention to how events unfold in the coming days and weeks.

Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.



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