Since 2000, Russian oil production has risen like a Phoenix from the ashes of it's 1998 financial collapse. It "quietly" became the World's top crude producer in 2006 retaking the spot Russia has occupied on several occasions over the past century and, as of 2015, achieved an admirable 10 mbd + some.
Over the past century, Russia's oil has seen large peaks and dips in correlation with business not going well. Because of this "predictability", the world is not holding it's breath for Russia's oil to once again peak, drop, rinse, and repeat the way they would if say Saudi Arabia's oil production was looking to peak and enter decline.
There is a long history of rumors and some legitimate observations that Russia's oil production rate is nearing a possible final peak. Personally, I seriously doubt this is the case but Russia is a heavy weight oil producer so let us discuss.
Impact on Longterm Energy Outlook
The World consumes about 92 mbd (as of 2015), therefore Russia's crude production is slightly over 10% of the global supply. That may not sound huge but consider that the market conditions that are partially responsible for crude prices current tailspin have a supply glut of 2%. So yes, any major change in Russia's oil production could greatly affect global inventories.
To understand better where Russia's oil, we must start at the beginning.
In the Beginning…(The Back Story)
The Russian oil industry was born in the fields of Baku in Azerbaijan. (later part of the USSR, not Russia Russia) In the early days, it was operated by the powerful Rothschilds, Nobels and several other oil barons. Prior to that, plenty of people were messing around with oil in Baku but nothing relevant to our purposes happened until the 1860's. The arrival of Alfred and Ludvig Nobel from Sweden in the 1870's is what really kicked the party off and then Rothschilds arrive with their mountains of money to finance the industrial boom. In the early 1900's, regional strife due to ethnic and political tensions broke into what turned out to be the Bolshevik Revolution. Incidentally Stalin worked in the Baku fields and the early revolutionary movement began among the oil field workers. During the Bolshevik Revolution, much of Russia's oil industry was damaged by workers on strike and production fell. The Russian oil fields were formally nationalized in 1918.
The Caspian oil region was a big part of the Bolshevik revolution and I'm not going to go into the causal roots (a matter of historical viewpoint) of the rise of Communism in Russia/Bolshevik Revolution. Though Baku may sound like an industrial haven with a lovely Swedish company (hello, same guy who started the Nobel Prize) in operation, remember that during this time Russia/areas under Russian influence had hundreds of years of drama and backlogged problems. The Baku region was a ethnic and religious mixing pot and history tends to be supportive of the statement that neither usually work out well in that part of the world.
Oil tends to effect a country's "getting along status" in the same way a trip to Home Depot effects a marriage: disagreements about the future, usage of cash resources, and the resurrection of historic quarrels.
Dmitry Mendeleev (same guy who came up with the Periodic Table) traveled to the US and observed operations and the usage of pipelines. Upon his return, he recommended that the Baku oil region construct pipelines to transport oil rather than using tankers on the Caspian Sea. Pipelines were eventually constructed but at the time Mendeleev put the idea on the table, unlike the periodic table, he didn't get a gold star. Takeaway: the the dude who came up with the periodic table was an oil guy.
Russia's Ugly Twin
The oil industry in the US emerged at about the same time and it's early development mimed Russia's until the early 1900's.
World War I showed the importance of petroleum in the modern World and therefore the US Government wasn't happy to see resources being wasted and the industry in chaos. In 1931 Texas actually brought out it's state militia to shut down production. Following Harding's failed presidency (bad luck with Teapots and cholesterol) and under Roosevelt's appointed Secretary of the Interior Harold Ickes, the US oil industry was finally brought to order and regulated under Federal oversight.
It can be said that the US oil industry "putted along peacefully" after these changes - not really, there was plenty of drama - but for the purpose of this narrative, skipped. I recommend Daniel Yergin's The Prize if you'd really like to understand that saga.
Back to Russia
Following the Bolshevik Revolution and the establishment of the Soviet Union under Lenin, the Soviets realized they needed development assistance with their oil fields and began a recurrent pattern of bringing foreign expertise in to fix things, then finding convenient reasons for them to leave after oil started flowing.
The Golden 1930's
The revolving door pattern maintained with foreign companies worked out well and Russia maintained and increased oil production very successfully. By the 1930's, Russia had a gas station network throughout Germany with more networks following in Sweden, Spain and Portugal. Soviet oil reached a pre-WWII peak between 1929 and 1933. Remember, oil from the Middle East was a fun surprise down the road at this time and therefore Europe was a captive market with a growing thirst for petroleum. By the end of the 1930's, production was tapering from the workhorse fields of Baku and Grozny (in Chechnia). Russia's epic run as an oil producer would have reached retirement if it weren't for huge fields discovered in the Volga and Ural region.
And then WWII...
At the beginning of WWII crude oil sales to Hitler and Mussolini and everyone else worked out nicely for Stalin but things got sour when Hitler got tired of being a customer and decided to come over the border.
Russia ultimately lost it's fields in Chechnia and in the Urals to the German invaders but not before sabotaging them prior to their retreat such that the German's didn't seize the cornucopia of petroleum resources they had hoped for. Germany wasn't able to capture the Baku fields but successfully interrupted shipments of oil that made it extremely difficult for the Soviet's to manage it's production. Incidentally, the Baku fields were never able to achieve their pre-WWII levels.
The case that Germany lost WWII because of a lack of petroleum resources has been put forward by several historians, notably Daniel Yergin. I personally am of the opinion that oil was a factor but WWII was much more complicated than a petroleum commodities dilemma. Nevertheless, it is a interesting historical study with some compelling points.
Hope in Siberia
The war ended with Russia's oil fields in shambles, skip to Stalin inviting foreign companies back in to bring oil production up again. Skip ahead to the 1950's - crude production from the Volga and Ural fields discovered right before WWII began to wain. This would have been a major concern except throughout the 1950-60s new fields in West Siberia were being discovered and production from them being brought online to maintain the Soviet's production. Notably Samotlor, a giant "elephant" field which was discovered in 1965 and brought online in 1968.
Much of the rumours about serious production declines are based Russia's production methods - specifically water flooding. Russia has a habit damaging fields with poorly managed water floods is a matter of the industrial system rather than a lack of knowledge of reservoir mechanics. Aggressive water floods can be very effective, most major oil fields (Ghawar and Prudhoe Bay) have been producing with support of water flooding for decades.
Water Flooding Explained
Water injection/Flooding/Recovery into an oilfield is a lot like alcohol: it can make a situation a lot better/worse, the rate at which you imbibe and location matters quite a lot.
After a well has been flowing under it's natural pressure drive for a period of time, reservoir pressure drops and hence flow rates drop. To maintain production, reservoir drive must be maintained and after the primary drive is depleted, drive is maintained by injecting water into the reservoir or water flooding. This is one of the oldest and most common production techniques in usage. Saudi Arabia's oil is produced primarily by water flooding as are many other fields around the world.
Oil has a greater viscosity than water and therefore flows less easily. When embarking on a water injection program (usually an imbibition process, as part of a greater EOR effort), maintaining a "piston-like" displacement of oil with the water is key. If to much water is pumped to quickly into the reservoir, the water will begin to "finger" it's way through the oil zone and those "fingers" will form water channels. Finally those channels will become the path of least resistance for the water to flow through the reservoir and the produced liquid will yield an exponentially growing water cut and finally the produced liquid will be all water.
Where the water is injected also is of significance. Fields have varying permeability (and other properties) and successful water flooding program depends on the key placement of injection wells. When a reservoir is over injected with water - water breakthrough has occurred, there is no going back/reversal of the damage.
It is possible to "rehabilitate" a damaged reservoir with exotic tertiary production techniques to coax the remaining oil out of the ground but often large "orphaned" oil zones are stranded despite the of efforts and the ultimate oil recovery from the reservoir is severely affected. Tertiary recovery techniques (injection of gas mixtures, hot water/steam, various chemical, Polymer solutions) are never cheap. Tertiary recovery is generally part of an EOR program and is last production phase of a mature/brown field. When the field has been previously damaged to the extent that many Russians fields have been, tertiary techniques are very risky and less likely to yield the desired production results.
Death by Quota
The USSR's Quota system placed emphasis solely on quantity than quality. If a factory met it's quota, bonuses would be rewarded. Therefore, Russian factories essentially did away with any and all constructs intended to enhance the final product (i.e. R&D and Quality Control) as no market "existed". Hence customers being happy mattered nothing and all efforts focused on meeting production quotas. (Sometimes ridiculously unrealistic, think Ukraine, think Stalin's 5 year plan)
The best example of this is Russia's steel industry. Fun fact: Russia was the World's biggest steel producer prior to the 1990's (who knew? China is now #1 in steel production). So how does a former "World's biggest steel producer" also capture the title of "World's sh*ttiest steel"?
Soviet managers received bonuses based on output rather than the quality of output. Therefore the production equation became the limit of quality is equal to an asymptotic value that approaches zero as production is equal to the required quota. Central planners had a bad habit of requiring Soviet industries to meet ridiculous production quotas hence factory managers and workers would throw all quality control measures to the wind as they desperately worked to meet the quota. It has nothing to do with Russian's having issues understanding metallurgical science, just no reason to make a higher quality product.
Prior to the fall of the Soviet Union, the only steel readily available for industrial use was "D-Grade", hence most of the wells drilled prior to the 1990's have a maximum depth of 6500 feet (2000 meters). This is because the drill pipe available was relatively low strength and not capable of drilling deeper.
We learn in Petroleum Engineering 101 that the oil window is located between 5,000 and 10,000 ft (where oil "cooks"). It often migrates to much shallower depths but the distribution between shallow and deeper deposits is fairly equal, hence being able to drill to a maximum depth of 6500 feet is an obvious limitation to optimal resource development.
1977: Year of the Bad Prediction
There's a pattern here: the Russian oil industry has phenomenal luck with their oil discovery schedule and has very successfully "leapfrogged" from field to field. This has not gone unnoticed by outside observers. Particularly the US as the Soviet's petrodollars paid for expensive missile and nuclear technology that kept Eisenhower and Kennedy awake at night, especially during years like 1962.
In the Spring 1977, the CIA released an open report that stated without technological advances to substitute water flooding, the Soviet's oil production was due to plummet such that by 1985 they would no longer be capable of exporting oil. This prediction spectacularly failed to materialize as in 1985; Russia's production had dropped incrementally but held steady to 12 mbd.
When Russia's oil production did indeed plummet in the 1990's it had little to do with the poor production practices cited by the CIA. The drop had to do with low global oil prices, a bankrupt post-Soviet Union government taxing the newly privatized oil industry to such an extent that rather than producing oil, the owners profited by asset stripping.
For many American's, this is an embarrassing memory, particularly because Jimmy Carter decided to give a national address that more or less predicted an energy apocalypse that didn't exactly happen but mostly because it involved Jimmy Carter.
People have been projecting Russia's oil production to fall for years, there are legitimate observations that support this but this scenerio is very very unlikely. Despite management issues under the Soviet system, Russia's oil and gas industry is remarkably hardy and benefited from truly spectacular oil and gas deposits.
With event of Russia being sanctioned, many expect for Russian oil production to fall. I disagree - first if their currency devalues, it will radically reduce the real cost of capitol expenditures which will act more like a major stimulation to the oil and gas sector. This depends on how Russia's central bank deals with these changes. If it sacrifices foreign currency reserves to maintain the value of the ruble, oil and gas investment will likely stagnate and eventually production will sag. Watch the central banks actions. Russians, like Alaskans, are sturdy northern people who maintain oil facilities at -40F. Don't underestimate them.