Oil and Gas Prices in Russia: The End of Putin’s War in the Cold Cold War? An Analysis of Moscow’s Expenditure and Economy
The impact of Western sanctions is poised to develop into a crisis over time. Bloomberg Economics estimates that Putin’s war in Ukraine will slash $190 billion off Russia’s gross domestic product by 2026 compared with the country’s prewar path.
Those measures are already straining Russia’s finances as it struggles to find replacement customers. The government reported a budget deficit of about 1,761 billion rubles ($23.5 billion) for January. Expenditure jumped 59% year-over-year, while revenue plunged 35%. Deputy Prime Minister Alexander Novak announced that Russia would cut oil production by about 5% starting in March.
Putin said in his speech that Russia’s economy and system of government have been stronger than the West believed.
Russia, the world’s second-largest exporter of crude, was able to send barrels that would have gone to Europe to countries like China and India. The European Union, which imported an average of 3.3 million barrels of Russian crude and oil products per day in 2021, was also still buying 2.3 million barrels per day as of November, according to the International Energy Agency (IEA).
In an interview with CNN, Janis Kluge, an expert on Russia’s economy, said that the era of windfall profits from the oil and gas market is over.
Meanwhile, the ruble has slumped to its weakest level against the US dollar since last April. The currency’s weakness has contributed to high inflation. And most businesses say they can’t conceive of growing right now given high levels of economic uncertainty, according to a recent survey by a Russian think tank.
“It’s a question of natural resources,” Sergey Aleksashenko, Russia’s former deputy minister of finance, said at an event last month hosted by the Center for Strategic and International Studies, a think tank. He said the economy experienced a decline but not a collapse.
Russia’s oil export revenues increased by 25% last year to $18.1 billion according to the IEA. It is very unlikely that Putin will have a repeat performance.
Finding new buyers for processed oil products, which are also subject to new embargoes and price caps, won’t be easy either. China and India have their own network of refineries and prefer to buy crude, noted Ben McWilliams, an energy consultant at Bruegel.
Russian Economy in the 21st Century: The Role of the War on Russian Jobs and Industrial Development, according to Tatiana Orlova
The Russia Institute at King’s College London said that any energy resources obtained would be spent on military needs.
“Whether the economy shrinks or expands in 2023 will be determined by developments in the war,” Tatiana Orlova, an economist at Oxford Economics, wrote in a note to clients on Tuesday. Shortages of workers tied to military conscription and emigration pose a key risk, she noted.
Most sectors that depend on imports are vulnerable. Domestic car makers such as Avtovaz have struggled with shortages of key components.
Last year, the Russian auto industry was weakened after companies such as Volkswagen ceased production and began selling their local assets. Chinese firms have become part of a larger trend. Even so, sales of new cars dropped 63% year-over-year in January, according to the Association of European Businesses.
Firms are having a hard time planning for the future. Almost half of Russian businesses plan to maintain production for at least a year and almost no think about growth, according to a survey done by the Institute of Economic Growth. The group believes this contributed to the possibility of long-term stagnation of the Russian economy.
Given Putin’s ideological commitment to subsuming Ukraine, he’s unlikely to back down, according to Sharafutdinova at King’s College London. But his war chest “is likely, inevitably, to diminish,” she added.
Source: https://www.cnn.com/2023/02/22/business/russia-economy-ukraine-anniversary/index.html
Vladimir Putin’s economic woes during the first half of the 20th century: from the Russian to the world, from Russia to the US
“In normal times, we might have said that the population would protest against that,” Sharafutdinova said. “But of course, these are not normal times.”
“There will be no money already next year, we need foreign investors,” he said at an economic conference in Siberia Thursday, according to comments reported by TASS, a Russian state-owned news agency.
Russia’s economic output shrank 2.1% last year, according to a preliminary estimate from the government. The contraction was more limited than many economists initially predicted.
Foreign investors, especially from “friendly” countries, also have a big role to play, Deripaska said. He said that whether they come depends on if Russia can make its markets attractive.
China’s buying of Russian energy, replacement of Western suppliers of machinery and base metals and providing an alternative to the US dollar saved the Kremlin from financial ruin.
The collapse of the Soviet Union caused a scramble for assets which resulted in the creation of the aluminum business for Deripaska. In 2018, he was sanctioned by the United States, which noted that the oligarch “does not separate himself from the Russian state.” Last year, he was indicted for allegedly violating US sanctions.