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Clara Ferreira Marques

Putin’s Oil Deal Is Humiliating But Unavoidable

Russia couldn't really avoid participating in the OPEC+ deal, but this doesn't mean the output cuts will be easy for its aging oil fields.

Frozen output.

Frozen output.

Photo: Bloomberg.

For Lukoil PJSC’s billionaire shareholder, Leonid Fedun, Russia’s decision to sign up to the OPEC+ oil deal was akin to its signing of the 1918 Treaty of Brest-Litovsk, which dragged the country out of the First World War. Both were humiliating, but necessary, he implied. The alternative was far worse.

Back in early March, Russia, with its strong foreign currency reserves and low-cost producers, had expected to ride out the misery of tumbling crude prices. Unable to extend an existing output reduction deal with its fellow oil exporters, it spied an opportunity to squeeze out those seen by Moscow as free riders: namely, the U.S. shale producers who benefited from others’ production restraint, only to flood the market with supply.