Theories of Trade and Russia's Position as an Oil Exporter

Q. What theories of trade help explain Russia’s position as an oil exporter? Why? Which
ones don’t? Why not?
Answer:
Russia's LUKOIL is the world's fourth largest private oil firms in the world. Russia has
numerous amount of oil reserves. After the Consumption of local citizens, it is still available as
the abundance of storable commodity is there, so it is not easily spoiled. In that way Russia has
stepped into exporting this valuable commodity. Absolute advantage & comparative advantage
theory can help to explain Russia's position as an oil exporter.
The price of oil relies on supply & demand; that affects the competition and it is hard to know
what the rivals are up to so the fluctuation is happening. Russia have more proven reserves than
Saudi Arabia, here they're having the comparative advantage, also we can clearly sense their
acquired & natural advantage as the climate conditions, access to resources & availability of
labor, superior skills, greater capital assets are there. Technologically Russia had suffered in
2013 as USA innovated fracking technology. Factor proportion theory is also applicable as
Russia's oil sector is more capital intensive (1 unit of labor, more amount of capital) so the
country is having the labor-capital relationship. Lastly, Porter diamond theory of global
competitive advantage is applicable as the country is having demand conditions, related &
supporting industry & firm strategy, structure, rivalry.
Product life cycle theory is not applicable here as the product (oil) is not appropriate fit for the
model. Oil does not require to follow the introduction, growth, maturity & declining stage to be
exported in other countries. As we know oil is not found in every location in the world rather in
specific locations for geographic constraints. Also the theory of country size is not applicable
here as Russia consumes only 5 percent of its oil & exports the rest, so it goes against the theory.
Q. How do global political and economic conditions affect global oil markets and prices?
Answer:
Most of the global oil producing countries got the oil from acquired resources. They export oil
and also invest in distribution, exploration and refining. Global political and economic conditions
affect world markets and prices of oil. With the LUKOIL they have been also affected. Such
early incident we have seen during 2009 the great recession period had a negative impact on the
oil and gas sector as it led to a steep decline in oil and gas prices and a contraction in credit. The
decline in prices resulted in falling revenues for oil and gas companies. Oil prices fell from a