Putin’s regime is based on Russia’s oil and gas resources, which, despite his pledge to diversify, account for a quarter of the economy and half of state revenues (two thirds if other minerals are included). Putin can live with a stagnant economy and popular unrest, but he cannot survive a large and irreversible loss of Russia’s oil and gas earnings.
Basic economics explains how a Trump “high resource case” would undermine Putin’s petrostate: The first US fracking revolution made the US energy industry the “swing” or “marginal producer” on the world market. No matter what OPEC or Russia produces, the long-run price of oil will be set by the break-even cost of US unconventional oil and gas. The break-even is currently between $50 and $60 a barrel, but it is headed to lows of $40 or below. We should not underestimate the technological ingenuity of the fracking industry.
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