Article by: Olexandr Lashchenko
Oil prices in the world continue falling. They have fallen to the lowest level in the past four years. In particular, Brent oil cost $82 per barrel at times. Why is this happening, in your opinion?
The thing is that oil reserves in the United States have grown significantly. Another factor is that the Arab countries would like to improve their positions in international distribution. As to Russia, a significant part of the federal budget deficit is covered thanks to oil sales if the prices on this raw fuel are quite high.
And thus, the global oil prices are falling. At least, as of today. How will this influence the state of the Russian economy further? And in the end, will this leave a mark on the policies of this country, which supports the mercenaries and separatists in Ukraine and annexed Crimea?
If the current situation continues, it will, of course, have a negative impact on Russian state finances and the devaluation of the ruble. Because there is a correlation: ‘expensive oil – expensive ruble, cheap oil – cheap ruble,’ and we can see it now. Therefore, the impact here will be very significant.
Only significant? Can we predict catastrophic scenarios for the Russian economy? The scenarios that came to life in the USSR, especially through oil prices in the 80’s of the previous century, when because of the economic collapse, the Soviet Union finally fell apart as a country?
I think that such catastrophic prognoses are not naïve but sightly exaggerated. As of today, the Russian economy is stronger than in the last years of the Soviet Union. The Russian economy is integrated into world economics. And there are possibilities to support the Russian economy not only through oil. In modern Russia, just like in the Soviet Union, really, the welfare of regular people, human values are not in first place. So-called ‘state interests’ dominate.
What term does your prognosis have? Does Putin’s Russia have decades of economic strength?
Socio-political components, a strict centralized system of government are able to preserve Russia in the state it is now for a long time. Of course, the oil prices in combination with western sanctions are a factor of significant weight. However, again, Russia is integrated into the global economy. These sanctions will have an effect, however nobody is interested in, say, Russia falling apart. At least in the next 3-5 years. And later is too far of a horizon. The world is very dynamic. And it is unlikely that today we can predict the situation five years in advance.