Despite a 9 percent decrease, Urals spot prices in Northwest Europe were still one and a half times higher in 2019 than in 2016 ($63.3 versus $41.1 per barrel, according to Refinitiv), when the first OPEC + agreement was signed.

As a result, the Russian budget again, as in 2017-2018, received additional income, which reached 6.2 trillion rubles (just over $100 billion) from the moment the deal was concluded, as follows from estimates of the Russian Ministry of Energy.

Growth above expectations

Thus, the deal once again proved its effectiveness, which turned out to better than the initial market expectations. For example, in 2016, the World Bank and the US Energy Information Administration (EIA) predicted that between 2017 and 2019, the average Brent price would be $59.3 and $58.4 per barrel, respectively, while in fact it reached $63.2 per barrel.

At the same time, in 2018, the average actual price of Brent ($71.3 per barrel) exceeded the forecast level of the World Bank ($59.9 per barrel) and EIA ($57 per barrel) by more than $10.

Such a significant difference is partly due to the high discipline among the deal’s participants: thus, in November 2019, OPEC members achieved a compliance rate of 154%, and non-OPEC countries by 125% according to the International Energy Agency (IEA). This piqued the interest of hedge funds which began to pile into futures as the deal gave them the opportunity to earn additional income.

It is no coincidence that oil prices rose during the December OPEC summit in 2018 and 2019, in which the cartel decided to extend, and even upgrade the deal: thus, in the first week of December 2018, Brent futures at the Intercontinental Exchange (ICE) grew by 4.6% (to $61.4 per barrel), and in the first week of December 2019 - by 5.6% (to $ 64.3 per barrel).

Asymmetric gain

However, Russia was not able to derive high benefits from the deal. By tying the budget to an oil price of $40 per barrel, the government was able to replenish the National Wealth Fund: in the first eleven months of 2019 alone, it more than doubled, from $58.1 billion to $124 billion.

The federal budget itself also benefited: if in 2016 its deficit amounted to 3.5% of GDP, then in the first eleven months of 2019 its surplus reached an impressive 3.1% of GDP, as follows from estimates of the Economic Expert Group.

However, the government failed to restart economic growth, which had already slowed down to 1.8% in pre-sanctioned 2013, which is insignificant for developing countries.

Moreover, the very existence of a budget surplus became a headache for the government: if in 2016 the federal budget left unspent 220 billion rubles, then in 2018 - 778 billion rubles, and in 2019 - even 1 trillion rubles, as follows from the estimates of the Russian Accounts Chamber.

Saudi Arabia benefited much more from the deal: largely thanks to increased oil prices, the Kingdom not only successfully carried out an IPO of Saudi Aramco, whose capitalization has already exceeded $1.7 trillion, but also launched the Vision-2030 program, which aims to diversify the economy through major investments in infrastructure, tourism and human capital.

By making a decisive contribution to cutting oil production, the Saudis managed to reduce the budget deficit (from 12.9% of GDP in 2016 to 3.8% of GDP in 2019, according to IHS Markit), and therefore, a Russian exit from the deal will not be too painful for them. The fact that such a scenario is feasible is evidenced by the fact that in December the OPEC+ agreement was extended for only three months - this is a clear sign that in 2020 the deal will be revised to one degree or another.

Risks mixed with opportunities

For Russia, this is not only a threat, but also an opportunity. On the one hand, an exit from the deal will remove barriers to production at fields that have been commissioned by Rosneft (Suzunskoye, Russkoye, Zapadno-Erginskoye, Yurubcheno-Tokhomskoye) and Gazprom Neft (Kuyumbinskoye, Vostochno-Messoyakhskoye) in recent years. As a result, this will accelerate the growth of Russian oil output, which slowed down from 5% in 1999-2008 to 1.3% in 2009-2018, according to BP data.

On the other hand, even with a drop in oil prices, the federal budget is expected to remain stable, since prices of $40 per barrel are now sufficient to cover its expenses, rather than more than $100, as it was back in 2013. Therefore, a revised deal will not be a disaster.

Russia needs to start preparing to exit the deal now, instead of delaying it until the United States becomes a major net exporter of oil, which could undo OPEC efforts to reduce production.