I’ve written before about the remarkable speed at which non-conventional oil and gas, especially shale gas, are being discovered and (at least in the US) exploited. The effect of this on world energy markets is likely to be good for consumers, but not for traditional suppliers, especially the Middle East producers and Russia. Russia’s economy has been built on oil and gas for a century. The collapse of the Soviet Union came after a steep fall in the oil price from the highs of the 1970s. The strength of the Putin regime has coincided with high prices (see diagram).
There is a powerful linkage, which is discussed in this report by Lauren Goodrich and Marc Lanthemann of intelligence consultancy Stratfor. They also emphasise the ways that Russia (and before it the USSR) used energy as a political tool, to reward and punish countries. With the risk of lower prices in future, Russia will have to choose between maximising revenue and maximising political influence. It’s more likely to do the former, which is why shale gas and unconventional oil may have big political effects.