Is the Russian Economy on the Verge of Collapse?
Does under $30 oil hurt the Russian economy? Maybe…
The Russian economy in theory at least should always be in pretty good shape, mainly due to the considerable reserves of crude oil and other mineral resources. Russia was less affected than many other national economies by the global depression, which began in 2008. However Russian economy news is full of suggestions that Russia’s poor relations with other countries like the US, Turkey, and the European Union could impact on future economic performance.
The Russian government can change its national exports of crude oil, petroleum, and natural gas to any other country in order to maximize national revenue. The Russian economy today could be hurt by its government’s involvement in the Ukraine and the Syrian Civil War if trades sanctions are imposed against them, though it would not worry Vladimir Putin at all.
Yet the Russian government will argue that its economy today is stronger than most of its rivals. The Russians could halt oil supplies to make political points whilst weighing up the harm it could cause to its own economy. Conversely sanctions against Russia for its involvement in the Ukraine has not impacted too much on it. The Russians could retaliate by cutting off oil supplies. They would do so believing that if would not cause Russian economy problems.
However the Russian government would only take such drastic steps if it considered that the economic and political consequences of deciding against doing nothing would be worse than the consequences of cutting off supplies. Of course Russian governments are supposed to comply to the liberal ideal of global free trade as a full member state of the World Trade Organisation (WTO). Putin does not seem the type to do that though.
The Russian government should not consider cutting off or restricting energy supplies to other countries and trading blocks lightly, yet has not been the case under Putin. The Putin government has shown it has no qualms in curtailing fuel supplies to prove political points. When Russian fuels consignments have been stopped to certain countries their economy has been protected from damage by selling more fuel to other nations.
The logical thought for the governments of countries Russia has cut oil and gas supplies to is that the Russians will not do so for long to avoid damaging their own economy. Putin likes to play political hard ball and assumes that other countries will eventually back down simply to buy fuel and other essential raw materials from the Russians to protect their respective economies from more expensive supplies.
It is highly probable the Russians will carry on their economic policy of cutting off fuel and other mineral supplies abroad when it wants to get its own way. They will keep all supplies under tight control unless their demands are agreed with and only resume normal supply levels when Russian aims have been met to Putin’s satisfaction. This in contrast to the Yeltsin era when the Russian economy collapsed as the Communist infrastructure was dismantled and millions of Russians suffered high levels of poverty. In many respects the Putin regime behaves like its Soviet predecessor did, relying on economic threats and military might convince other nations to follow the trade policies, that suit the Russian economy the most. Or more accurately the economic interests of the ruling and economic elites.
Russia currently has a regime that will risk the threat of domestic economic collapse to get its own way on issues with foreign nations. Since 2000 under the autocratic guidance of Putin, Russia has taken advantage of the importance of fuel sales abroad. Putin fully understands the importance of such exports to enhance Russia’s economic position. If his policy backfires then it will be ordinary Russians that suffer. However Putin is popular among them as he restored national after the humiliations suffered under Yeltsin.
Putin will co–operate with foreign states yet is ready to assert his own country’s economic, political, or military strength when he believes it is best to do so. Indeed under Putin economic and foreign policies have frequently been shaped by the objective of gaining economic plus political concessions via the stricter control of fuel and minerals to any and all its trading partners.
Putin is not totally against foreign involvement in the Russian economy. Foreign companies and experts are helpful to fuel and mineral production, which was really inefficient during the Soviet era, and which was hampered by the rapid transition to a capitalist economy. Siberia is where much of the fuel and minerals that the Russians export is extracted from, and if things go wrong there it could bring about the collapse of the Russian economy.
Further more the Russian and foreign owned energy firms need to take severe winters into account when calculating the costs of extracting fuel reserves, which is not a factor in the Middle East, although political instability is increasing. To enhance productivity Russian oilfields have to benefit from greater amounts of capital investment, whether from domestic or foreign investors.
The long – term problem for the Russian oilfields presently producing large quantities of fossil fuels is that these fuel reserves will exhaust sooner. No more reserves, which would put the risk of Russian economy collapse much higher. Foreign investors tend to invest in fossil fuel exploration projects. Without further exploration and extraction the future of the Russian economy would not be too bright.
Yet the Russian government and oil firms are to a large extent justified in contending that the fossil fuels available for exploitation in Russia could be more abundant than anywhere else in the world. As yet none of the energy firms have managed to find the huge, but readily accessible, and thus fairly cheap to work from new oilfields in Russia. On a global basis the new reserves of fossil fuels that are been developed for exploitation are not as massive as the resources that are already been extracted at present. Should such reserves be found and extracted in Russia then the economy will have greater prospects and to a certain extent retain its current ability to avoid the worst affects of global recessions.