Russia’s oil industry may have experienced a steep decline after the collapse of the Soviet Union, but a subsequent turnaround in 1999 led to it replacing Saudi Arabia as the world’s leading oil producer, albeit only marginally. In terms of proven oil reserves, Russia only ranks eighth in the world, although there are potentially vast reserves waiting to be discovered, such as in Eastern Siberia.
Russia’s oil industry began in Baku, which is now the capital of Azerbaijan but was then part of the Russian Empire. Marco Polo’s writings describe the people of Baku using gathered oil from seeps. The first well was drilled there in 1846, predating the American Drake well in Pennsylvania by 13 years.
It was relatively easy to extract oil from the fields around Baku, but transporting the oil was a different matter. The Shell Transport and Trading Company, which would later become Royal Dutch Shell, started by transporting oil from Russian wells controlled by the Rothschild family. More fields were discovered as the industry developed, and by the start of the 19th Century, Russia was producing around a third of the world’s oil.
The Russian Revolution of 1917 and the subsequent nationalisation of the oil fields in 1920 deterred some, but not all, Western operators. For example, Vacuum and Standard Oil of New York—which would later become Mobil, the maker of slideway lubricants like Mobile Vactra 2—continued investing in Russia, helping production to recover to pre-Revolution levels.
The oil industry continued to develop under the Soviet Union, enabling the country to earn hard currency by exporting oil at competitive prices. It became the world’s top producer in 1988, but poor reservoir management and short-term thinking meant this could not be sustained.
The collapse of the Soviet Union and a drastic drop in domestic demand, combined with limited export capacity, contributed further to the industry’s decline. With a limited market for their oil, producers cancelled any new exploration or drilling.
Following privatization, Russia’s oil industry turned a corner in 1999 and began regaining ground. By 2007, it was back to producing almost 10 billion barrels a day.
Oil and gas production is very important to Russia today, with it supplying almost half of the national budget. The government is therefore very keen to maintain production levels, and there are significant untouched reserves if the challenges of the harsh climate, remote locations, and a lack of transport infrastructure can be overcome.
