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28 Nov, 2007 05:17

Oil shortage holds back Russia

Oil has partly been the reason for Russia’s re-emergence as a world power, with record prices helping to push the country’s budget sky-high. But now the sector is facing a shortage of oil products.

Although Russia is one of the world's leading oil exporters, its own refining sector is being held back because so much of the oil is sent abroad.

The government taxes oil companies very heavily, taking around 2/3 of the profit they make from exporting oil abroad.

The high taxes are meant to encourage the oil firms to export less and refine more in Russia.

But with global oil prices so high, currently around $US 94 a barrel, its more profitable to sell oil abroad than refine it domestically.

“We see the huge gap between the exporting prices and exporting tariff. It forces oil companies to export more oil rather than pass this oil to their refining facilities domestically,” insisted Maksim Shein, analyst of Broker Credit Service.

Russia's crude oil export duties will grow by 10% in December and will continue going up if the global oil prices keep rising.

At the moment, the oil price is so high that companies still make a tidy profit despite the tough taxation regime.

Analysts say the only way to achieve significant growth in the Russian oil refining sector is to reduce export taxes freeing up the oil companies to invest more of their profit at home.

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