At this festive time of year, Westerners should spare a modicum of cheer for Russian energy producers, battered by plunging global demand and a tax rate that recently stripped them of any profit. The global plunge in oil prices occurred more swiftly than the Kremlin anticipated, having on Oct. 1 slapped a duty of $372.20 a ton on oil exports, to last until Dec. 1. Russian energy companies wound up paying the government $69.40 for each barrel of exported oil at a time when world prices slumped to $66.65 a barrel and lower.

Accordingly, last month's export figures were dire -- according to official statistics, Russian oil exports via the state monopoly Transneft pipelines shrank by 17.6 percent from the previous year to 13.128 million tons in November, while output fell 0.3 percent from 40.3 million tons to 40.2 million tons and production fell 0.5 percent.

Last month's bad news extended to Russia's other energy sectors as well: Natural gas exports dropped 21 percent and coal exports fell 2.8 percent. Completing the grim picture, the production of electric energy went down as well.

The short-term result of squeezing the energy cash cow? Lowered revenues for the Kremlin and a sight guaranteed to strike fear into the hearts of accountants and board members of Russia's energy companies -- ledgers awash in red ink. As one LUKoil official noted, "The government's ruling on introducing a new lowered duty from Dec. 1 hasn't taken effect yet. In November, we were losing over $40 from each exported ton."

In a meeting that has yet to be reproduced in Washington, on Dec. 3 oil executives hunkered down in Moscow with Vice Premiers Igor Sechin and Igor Shuvalov to plead for relief, noting that the drop in production combined with the decline in exports argued for easing their fiscal burdens.

In fact, the government had already moved on the export tariff issue. On Nov. 26 Prime Minister Vladimir Putin signed a government decree approving new export duties for crude oil and petroleum products. Beginning on Dec. 1, the export duty on Russian crude oil was lowered to $192.10 from $287.30 a ton.

In reality, Putin's government had little choice but to slash tariffs, as energy remains the primary engine driving the post-Soviet Russian economy. Last year Russia's real gross domestic product grew by approximately 8.1 percent, surpassing average growth rates in all other Group of Eight countries, a pattern of economic expansion that had been sustained over the previous seven years by Russia's energy exports, which fortuitously dovetailed with both an increase in Russian oil production and rising world oil prices.

The country's rising prosperity led the government in 2004 to establish a stabilization fund to manage the country's cash windfall from energy imports, and analysts estimated that by the end of last year its reserves stood at an impressive $158 billion, approximately 12 percent of the country's nominal gross domestic product. Russia's Alfa Bank calculates that the country's energy sector now accounts for about 20.5 percent of Russia's GDP, while the World Bank and International Monetary Fund estimate that in 2007 Russia's oil and natural gas sector produced 64 percent of Russia's export revenue as well as producing 30 percent of all foreign direct investment.

If prices are a volatile "wild card" in government financial planning, production is not, being essentially flat; according to the U.S. government's Energy Information Administration, Russia's current oil production is approximately 9.8 million barrels per day, of which 2.8 million bpd is consumed domestically. The picture is not quite so rosy as it sounds, however, as the EIA notes that a number of Russia's older fields are in decline, or, to use a current media buzzword, producing "peak oil." According to the EIA, in 2006 approximately 24 percent of Russian production was produced by fields that had already produced 60 percent of their total recoverable reserves. Such a situation either requires increased investment to extract the remaining reserves or the opening up of new fields, both costly options in a world of slumping demand.

A further issue complicating the picture of increasing energy production is Moscow's increasingly interventionist policy toward foreign investment in the country's energy sector. The recent travail of BP in its wrangle with Russian partners over the joint TNK-BP venture is but the latest in a series of unhappy confrontations between Western joint venture partners and their Russian partners, and foreign energy concerns are increasingly vocal about the fact that the Russian legal system hardly seems to dispense "blind" justice, leading in turn to a significant slowdown of foreign investment capital. Accordingly, a number of proposed export pipelines have been sidelined for a want of construction capital, leaving Russian oil production hovering around the 10 million bpd mark for the foreseeable future.

Russian energy companies and the Kremlin are nothing if not pragmatic, however, and accordingly have begun to downsize their projections. In projecting prices for 2009, Rosneft Vice President Peter O'Brien said during an interview on the Vesti TV news channel that his company did not expect oil prices next year to trade at much below $50 a barrel, even while acknowledging, "This is possible," adding that Rosneft will draft its 2009 budget on the assumption that benchmark Brent crude will still trade next year at $50 and that Rosneft will press forward with several strategic projects such as its eastern Siberian Vankor oil field.

O'Brien's optimism aside, Rosneft in fact may find such projects need to be postponed, as the company has to pay off $852 million in debt before the end of the year and, according to the company's schedule, in 2009 find an additional $5.449 billion to cover its debts. In figures that would cause Houston executives to quail, Rosneft's net debt totals $19.338 billion, even though the company has paid off $6.887 billion since the beginning of the year.

Rosneft and other energy concerns have a cushion that foreign multinationals do not, however -- access to state banks. In the last two months Rosneft received $3.8 billion in short-term loans from state-controlled banks. On second thought, don't call it a loan -- call it a "stimuliruiushchii paket" (stimulus package).