Russia’s Mutiny Underscores Oil’s Fragility

Last Friday morning, one of the more diverting headlines about Russia concerned one of its diplomats apparently squatting on a plot of land in Canberra, defying the Australian government in a dispute over a new embassy. Nonplussed, Prime Minister Anthony Albanese dismissed this minion of Moscow as “some bloke standing on a blade of grass.” Ah, Russia.

Within 24 hours, headlines were instead debating a potential coup in the world’s second-largest exporter of crude oil (and largest holder of nuclear weapons). A further turn around the sun later, we were all left wondering what, if anything really, had happened.

Oil prices were, understandably, unmoved. In terms of barrels flowing and who runs Russia, nothing had changed. And the oil market is used to drama, even drama of what might be called Wagnerian proportions. After all, an actual war, in Ukraine, and subsequent severing of energy links — sometimes explosively — sent oil back into triple digits in 2022 for the first time in eight years. Less than 18 months later, the price is actually below where it stood on the eve of the invasion.

But the seeming inconsequence of a one-day mutiny led by an obscure figure, Yevgeny Prigozhin, belies a more fundamental challenge to our energy system as currently conceived. Russia’s weekend drama may not have turned out to be much of a catalyst, but it is a powerful symptom. In an added twist, Progozhin turns out to be an unlooked-for ally simultaneously to Big Oil and Big Transition.

The oil market is a colossus of the modern world, generating more than $3 trillion a year, bankrolling entire nations and mobilizing humanity. The Ozymandian scale obscures its fragilities. Consider: Just three countries produce more than 40% of the world’s oil. One, Saudi Arabia, is an absolute monarchy run by an impulsive Crown Prince attempting the not-small feat of turning his petrostate into a diversified, modernized economy. Another, Russia, is a revanchist, decayed empire where a former caterer has just shaken its autocratic power structure inside of a weekend. The third, the US, is more stable relative to the other two but not, at present, relative to its own history, with the divide over energy and climate change just one fissure in a bigger web of institutional cracks.

Beyond these three, there are smaller but still significant oil producers that aren’t exactly in peak condition: Nigeria, Iraq and Libya to name a few. The world’s largest oil reserves, an estimated 300 billion-plus barrels, mire beneath the soil of Venezuela where, in all likelihood, economic and political decay will keep the vast majority of them confined.