Perspectives of Russian existense in conditions of cheap oil prices have been assessed by Nick Butler. He claims that during the latest 25 years Russia has been enjoy relative stability, but now the situation has changed. This has been studied by journalists of Internet edition for traders the “Market Leader”.
In his publication to the “Financial Times” American economist Nick Butler has described the joyless perspectives of Russian future in conditions of cheap oil. He states that during the whole period of existense of Russia as a separate country its stability has been provided by high oil price, and now the country’s management will have to face instability. Butler reminds that in due time cheap oil led to collapse of the Soviet Union, the much greater country than present-day Russia.
The situation at Russian energy market is unpromising. The cost of one barrel of Brent oil amounts to about 50 dollars, and gas price is also falling; besides, the share of Russia in European energy market is reducing. It follows from the abovementioned that hard times are awaiting for Russia. Analysts of the Masterforex-V Academy state that Brent oil has regained some price positions, lost in the course of the drop, but there remains a tendency to further price drop.
Currently Russia’s main threat is political instability inside the country and in near-border region, which will follow economic crisis. Trade of energy resources is the basics of Russian economy, but this moment currently represents a root of all troubles to the country.
This year energy sector has amounted to a quarter of GDP, whereas 2 year ago it amounted to a third of GDP volume. About 68 percent of trading volume falls on export of energy resources. Proceeds from sale of oil and gas make a half of all incomings to Russian budget and unofficially provide inviolability of acting government. This year drop of oil price will lead to decline of Russian economy by 3.5 percent, and profit from export sale will reduce by 95 billion dollars.
Low Price of Barrels as Russia’s Main Problem
These days the most serious problem for Russia is not sanctions introduced by the West sanctions or conflict in Ukraine; the difficulty lies exclusively in economic sphere. Butler reminds that a bigger part of 15-year reign of Vladimir Putin has coincided with the period of stable oil prices and accumulation of production volumes of oil and gas. Profit from sale of energy resources has allowed to satisfy businessmen, military men, average class in Moscow and St. Petersburg, and a bigger part of population.
The expert claims that Russian government was not getting ready to decline, observed these days – diversification of economy has not been effected. The previously gained reserve fund has become a “rescue pillow” during crisis. Nevertheless, this reserve is not enough if oil price remains at external level – the reserves will soon be exhausted.
American expert has paid his attention to the fact that “Gazprom” has recently announced a considerable cutback in production, so this year profit of the monopolist will drop by almost 30 percent. The situation with oil recovery is not best either. Every day Russia provides about 6 millions barrels of oil for export, but for selling this amount of energy carrier it currently gets about 40 percent of income, received for selling the same volume of oil in 2013. After a short-term rise the cost of oil has again dropped to 50 dollars per barrel. What is more, the situation at outer markets allows to exclude growth of prices in the nearest future.
Restricting measures and external isolation of Russia due to events in Ukraine in its turn also play considerable role in long-term perspective. Butler highlight that foreign company do not dare start cooperation with Russia while sanctions are introduced. Over time even former partners of Russian companies will successfully find alternative and cooperate with enterprises from other countries.
Future of Russian economy currently causes great concern among specialists. Vague perspectives have become the reason of large-scale outflow of capital. Since November 2013, when political crisis started in Ukraine, 300 billion dollars of foreign capital has left Russian economy.
American analyst calls this situation very dangerous, as Russian government has few variants to choose from. Controlling changes at energy markets is impossible for Russian president, or any other person. It takes time, measured in years, to overcome the negative consequences of influence made by cheap oil to Russian economy.
According to Butler, current situation bears a risk that difficulties in economy may push current Russian management, or its successors to harsher political course. One should rememver that Russia has spent a bigger part of its history in war; therefore, war may become an instrument that will help to distract the population from unpromising economic situation.
