Russia's taxing the heck out of it.

Ian Woolen, chief Russia analyst for Edinburgh-based Wood McKenzie, made the remarks in the wake of an International Energy Agency (IEA) report that cut supply forecasts for Russia and other non-OPEC countries. The news placed further strain on supplies from the producer group, already under threat from terrorism and instability in Saudi Arabia.

"Despite the fact that the oil prices are going up, with the year-on-year tightening of the tax regime, oil companies are feeling they don't have sufficient disposable income to throw into investment," Said Woolen.

He also blamed production problems in key drilling sites, including Exxon Mobile's Sakhalin 1 and Shell's Sakhalin 2 for the decline.

...Reduced upstream investment, higher export taxes and a heightened sense of regulatory uncertainty, combined with a drop in production by beleaguered Yukos, underlie the decline in Russian output, said the IEA.

About 20% of non-OPEC oil production is from Russia.