Lower Oil Prices Won’t Upset Slick Putin

- Advertisement -

Claims that $80 oil would lead to an economic crisis in Russia and an end to the presidency of Vladimir Putin are not true, Chris Weafer, a senior partner with consultancy Macro-Advisory in Moscow, wrote in an e-mailed note to investors on 14 February.

“One of the frequently heard criticisms about Russia is that the economy and socio-political stability are completely dependent on the price of oil,” Weafer wrote. “In recent weeks, in the run up to the Olympics, there have been several articles published claiming that at an average of $80 per barrel for Urals crude, economic growth would collapse and lead to social instability which would, in turn, bring about radical political change and an end to the Putin presidency. It would not. The short answer is that oil averaging down to $80, possibly to $70, per barrel would do neither,” the Moscow-based expert wrote.

But Julian Lee, senior energy analyst at London’s Centre for Global Energy Studies (CGES), told New Europe on 14 February that an $80-per-barrel oil price, were it to persist for any length of time, will undoubtedly cause real difficulties for the Russian economy. The country is heavily reliant on tax revenues from the oil and gas sector to fund expenditure. Russia needs an oil price of at least $100 per barrel to fund planned spending from current income, without drawing on reserves. “Like many big oil and gas-dependent countries, it could weather a short period of lower prices, but it is unable to boost production to offset such a fall and economic problems would quickly begin to emerge,” Lee said.

Weafer wrote that the Russian ruble will partly compensate for lower oil. “If the price of Urals were to slide sharply the ruble would also be allowed to weaken against the dollar to protect budget ruble revenue. We saw this in 2012 when Urals fell quickly from $120 per barrel to $90 per barrel. We should get the same response again in the event of an oil price slide,” Weafer wrote, adding that the weak ruble is already helping. 

He noted that an oil price drop would increase the budget deficit and the domestic and foreign public debt. Moreover, the lower ruble rate would add to inflationary pressures.

But, lower oil would also bring some benefits, including increasing pressure to restructure budget spending so as to cut or reschedule less productive spending in favour of spending which might boost economic activity. The privatization programme would likely pick up again. Moreover, there would be more support for plans to reform the pensions system and to regulate the insurance market so as to help build a bigger pool of domestic long term capital, Weafer wrote. Furthermore, lower oil would reduce the current complacency within government and help accelerate efforts to improve the investment and business climate, he wrote.

Turning to politics, Weafer noted that there is no evidence of a loss of support for Putin. Lower oil, if only down to $80 or even $70 per barrel, would not materially change the political landscape. Suggestions that public support for Putin is falling are also not supported with the evidence, Weafer wrote, pointing out that Saudi Arabia would be in more trouble than Russia and sooner.

follow on twitter @energyinsider

- Advertisement -

Subscribe to our newsletter

Co-founder / Director of Energy & Climate Policy and Security at NE Global Media

Latest

Tariff Trouble in Trump Town

President Trump has had many a cartoon about him...

Global reaction to Trump tariffs only reinforces his use of this tired and risky strategy

True to form, U.S. President Donald Trump disrupted global...

The New Face of an Old Enemy: The renewed dangers of ISIS and al-Qaeda

A dangerous cocktail of indifference and complacency enabled al-Qaeda...

EU-Central Asia Civil Society Forum enhances regional cooperation, sustainable development

Almaty, the largest city and former capital of Kazakhstan,...

Don't miss

Tariff Trouble in Trump Town

President Trump has had many a cartoon about him...

Global reaction to Trump tariffs only reinforces his use of this tired and risky strategy

True to form, U.S. President Donald Trump disrupted global...

The New Face of an Old Enemy: The renewed dangers of ISIS and al-Qaeda

A dangerous cocktail of indifference and complacency enabled al-Qaeda...

EU-Central Asia Civil Society Forum enhances regional cooperation, sustainable development

Almaty, the largest city and former capital of Kazakhstan,...

Donald Trump is inaugurated amidst promises of security, stability and prosperity

After storming a frigid Washington D.C. during his extended inauguration festivities on January 20, Donald J Trump, America’s 47th and 45th President, launched a...

Undeclared “open season” on energy infrastructure in Europe

Russia is claiming it has shot down nine Ukrainian drones that tried to attack the TurkStream pipeline, which carries Russian gas to Europe through...

NATO and EU strengthen Baltic Sea infrastructure protection after Estlink2 undersea power cable damaged

The damage of an undersea power cable off the coast of Finland in the Baltic Sea is the latest in a series of suspected...

After Baku, Belem COP to strengthen Paris Agreement

After the controversial agreement at COP29 in Baku, NE Global sat down with Professor Gregg Walker, a COP veteran, for a close analysis of...

EU searches for alternatives before Russian gas to Europe via Ukraine stops

The Ukrainian government has repeatedly stated that it will not extend a transit agreement, which has provided political, commercial, technical and legal grounds for...

OPEC+ postpones plans to increase production over supply unease

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known collectively as OPEC+, decided on December 5 to delay its planned...

Facing mounting challenges, new EU Commission takes office

Amidst global geopolitical turmoil, the European Commission of Ursula von der Leyen officially took office on December 1 with the President pledging that over...

COP29: Multilateral diplomatic stalemate circumvented

COP29 in Baku ended in the early hours of November 24, reaching a compromise deal on finance that will advance the global climate agenda...