The tax hikes, however, are offset somewhat by Russia calling on its oil companies to hold fuel prices steady to insulate its people from the high price of fuels. But in addition to the tax hikes, the government has also agreed to pay the oil companies back for doing so—compensating them for 60 percent of the difference between European fuel prices and Russian fuel prices.
Of course, lower fuel prices are usually welcomed by the masses, but to make this happen, Russia is unleashing $8 billion from its sovereign wealth fund and giving it to the oil companies—oil companies that have enjoyed a rather flush year. And it is this part of the arrangement that has stoked controversy in the country.
Russia’s sovereign wealth fund, which currently sits at almost $60 billion according to Reuters, was funded largely on the backs of these oil companies; a fiscal rule requires that Russian oil revenues stemming from anything above $40 per barrel be stashed in this wealth fund. But it was also designed to insulate the country from geopolitical turmoil and economically hard times that may arise in future years, for future generations.
The interesting turn of events that created the need to hold fuel prices steady stemmed largely from higher oil prices in the last year—higher oil prices that Russia is partially responsible for as it continues to cooperate with OPEC to curtail production.
The production cuts, however, did little to tarnish the bottom line of the Russian oil giants. Rosneft’s 2018 full year revenue was up 37 percent. Lukoil’s revenue was up over 35 percent.
By Julianne Geiger for Oilprice.com
More Top Reads From Oilprice.com:
Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.