Russia cuts output as tax adds to woes

The tumbling global oil price could see a drying up of exports from Russia the world's biggest producer after Saudi Arabia.

The fall in the price of oil coupled with high export duties is seeing Russian producers - including the BP's part-owned group TNK-BP - preferring to cut production and divert output into the domestic market where oil is now changing hands at as low as $10 a barrel.

The Kremlin has grown rich on the revenues from taxing exports from the country's huge reserves, but those excise duties are now being accused of being punitive and slashing the profit margins of the producers.

A spokesman for BP admitted the high Russian taxes would have meant exporters trading at a loss in October.

The knock-on effect, analysts warn, is a drying up of further investment by the producers as they have no cashflow from sales and cannot raise money in the credit crunch.