Russia’s Syria involvement: the economic point of view
Russian (RSX) energy exports have been hurt by the falling crude oil prices. Meanwhile, Saudi Arabia has become engaged in a price war with US shale oil producers and other OPEC (Organization of the Petroleum Exporting Countries) players. And so in order to retain its market share, the cartel is pumping oil into the international market. Since the US is a large net importer of crude oil, US shale producers’ oil likely won’t hit the international market.
The impact on Russia’s energy exports
North America accounts for a small portion of Russia’s energy exports. According to Russia’s state statistics, mined energy-producing minerals attracted 14.7% of the total fixed capital investment in the country in 2014. According to the EIA (US Energy Information Administration), crude oil accounted for 68% of the total exports and 16.4% of the GDP (gross domestic product) in 2013. Russia’s main trading partners are Germany (EWG) and China (FXI).
The graph above shows the impact of crude oil prices on RSX. Notably, Russian energy companies Gazprom PAO (OGZPY) and Lukoil (LUKOY) fell by 9% and 8.8% on a YTD (year-to-date) basis. As of January 26, 2016, Tatneft (OAOFY) rose by 12% on a YTD basis.
Key Russian markets in Asia and Europe
This price war has made life difficult for Russian energy companies and for Russia’s economy at large. This is because Asia and Europe are two important markets for Russia, together accounting for 98% of Russia’s energy exports in 2013. Although Russian companies aren’t directly concerned with US shale oil producers, they’re impacted due to the low crude oil prices on the international market.
Continue to the next part for an in-depth discussion of the broader economic picture in the Middle East.