The Phantom Menace: Can Labor Unrest in Russian Oil Companies Threaten Supply?

Since May 2006 a number of labor protests over wages and social policies have taken place in the city of Surgut , in West Siberia, involving several thousand employees of Surutneftegaz , Russia 's fourth largest crude producer. These demonstrations raise questions about the sustainability of comparatively strong Surgutneftegaz oil production growth and the risks of strike activity at the Russian oil fields generally.

In CERA's view

* There is little risk for the foreseeable future of large-scale oil strikes in Russia leading to possible supply interruptions, but the emergence of a more independent trade union movement is a new, complicating factor for the Russian oil majors in the longer term.
* The Surgut protests have been driven largely by worker frustrations over a payment system based on nonguaranteed bonuses and growing salary inequalities, to the detriment in particular of employees in the local oil service sector, who have not fared as well as employees directly involved in crude production during the course of oil industry restructuring.
* Although wages currently represent a relatively small share of the Russian oil companies' operating costs, the impact of increases in operating cost on the companies' bottom line is significant, primarily because the oil companies are subject to a progressive taxation regime that captures most revenue from the price increase above $25 per barrel.
* In a broader sense the Russian economy is awash in petrodollars and is experiencing some of the familiar symptoms of "Dutch disease" (the Surgutneftegaz episode is simply the latest manifestation of this).

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