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How oil exporters reach financial collapse

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The Collapse of the Former Soviet Union

The Soviet Union was an oil exporter and a major world power, prior to its collapse in 1991. While there aremany views as to what led to this collapse, one issue  seems to be a drop in oil price in the early 1980s.

The drop in oil prices did not lead to an immediate decline in oil production (Figure 6), most likely because the cost of maintaining production on a field that has recently developed,  is low for a few years. What is expensive is the up-front cost of bringing new fields on line. These were not added, causing a decline in production, after a few years.

Russia’s energy data shows the marks of the financial collapse building, prior to 1991. Revenue from oil exports dropped in the mid 1980s, because of the lower oil price. Oil production started declining in 1987, four years before the collapse. Other types of energy production started declining as well, as if a recession were underway, pulling the economy down in all areas.

Every type of energy production (except hydropower, not shown) dropped back during this period, even coal and nuclear, with decreases beginning prior to 1991. Population growth started slowing prior to 1991 as well. Eventually, the government collapsed, after continuing recession.

The FSU never regained its former stature as a manufacturing country, even when oil production rose, after oil prices rebounded. With little manufacturing, energy consumption has remained far below its pre-1991 levels (Figure 8).

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