Tuesday, October 3, 2023
 
 

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

Iran protesters mark anniversary of “Bloody Friday”

Residents in the southeastern Iranian province of Sistan and...

US announces Israel’s acceptance into the Visa Waiver Program

Israeli citizens will be allowed visa-free entry into the...

UN General Assembly 2023: More progress urgently needed on Sustainable Development Goals

The 78th United Nations General Assembly (UNGA) kicked off...

Don't miss

Iran protesters mark anniversary of “Bloody Friday”

Residents in the southeastern Iranian province of Sistan and...

US announces Israel’s acceptance into the Visa Waiver Program

Israeli citizens will be allowed visa-free entry into the...

UN General Assembly 2023: More progress urgently needed on Sustainable Development Goals

The 78th United Nations General Assembly (UNGA) kicked off...

Europe’s lawmakers see opportunity for regime change a year after Iran’s latest uprising

On September 21, representatives of various political groups held...

Interest surges in Turkmen gas

Turkmenistan's huge gas reserves have been generating considerable interest from potential importers following Ashgabat's announcement in late July that it is open to the development...

European aviation industry embraces new jet fuel regulation

The European Parliament on September 13 approved a new law to increase the uptake of sustainable fuels, such as advanced biofuels or hydrogen, in...

Nairobi Declaration calls for global tax on fossil fuel trade, maritime transport, aviation

As the curtains came down at the Africa Climate Summit (ACS23), heads of state and government adopted the Nairobi Declaration, calling on world leaders...

Mongolia to expand its economic and trade partnerships

Mongolia, the landlocked mineral-rich country bordered by Russia and China - the world's two preeminent authoritarian-run nations, is looking to expand its economic, trade,...

Turkmenistan signals major change in energy-export stance

A big shift is brewing for Caspian Basin energy exports. In a diplomatic about-face, Turkmenistan has signaled its readiness to develop a Trans-Caspian pipeline...

Can Central Asia escape China’s debt trap?

While Washington focuses on the war in Ukraine, Russia and China seek to expand their influence in regions where the US is not sufficiently...

Kazakhstan’s Deputy FM says EU & US ties remain strong as Central Asia’s largest country emerges as regional power

In the three-plus decades since Kazakhstan emerged as an independent nation from the ashes of the Soviet Union's 1991 collapse, the Central Asian giant...

Energy crisis prompts SMEs to boost renewables, energy savings

The energy crisis, high prices and threat of supply disruption following Russia’s war against Ukraine has prompted many small and medium-sized enterprises (SMEs) to...