News / Europe

    Russia Gets Giant Boost from Rising Oil Prices

    Russia Gets Giant Boost from Rising Oil Prices
    Russia Gets Giant Boost from Rising Oil Prices
    James Brooke

    As much of the world reels from civil unrest and natural disasters, Russia is cashing in on high oil prices that may allow it eliminate its budget deficit in 2011.

    Libya suspends oil exports. Political revolts put the Persian Gulf on edge. And Germany and Japan close one quarter of their nuclear reactors.

    In today’s energy world, Russia seems to be the winner. Producing 11 percent of the world’s energy output, Russia is the world’s biggest energy exporter.

    “This is a huge amount of energy - about five times more than Russia’s share of global GDP or population. This is the basic number,” said Leonid Grigoriev, who studies Russia’s energy economics at Moscow’s Higher School of Economics.

    With prices expected to average over $100 a barrel this year, the oil bonanza is expected to erase Russia’s budget deficit this year.

    This is timely for the Kremlin, which is handing out pay and pension raises as the nation starts an election cycle. The latest came Friday when President Dmitry Medvedev announced that salaries for soldiers will triple next January - just 10 weeks before  election day.

    Oil and gas pays for about 40 percent of Russia’s budget. Once prices rise over $27 a barrel, Russia’s Finance Ministry takes in 90 cents for each dollar.

    ”This is why the Russia depends so much on oil and on oil prices,” said Leonid Grigoriev. “And that’s why any turmoil in the world immediately brings money to the Ministry of Finance.”

    Today, foreign currency reserves are growing at $100 million a week. By the end of March, Russia’s total reserves are to hit $500 billion - the world’s third largest, after China and Japan.

    Now, economists are now raising Russia’s economic growth estimate for 2011 to five percent - the highest level since 2008, the year the economic crisis hit.

    Higher oil earnings filter down to Russian consumers.

    Last year, car sales and overseas travel jumped by one third. The equivalent of 10 percent of Russian  took foreign vacations. Next year, Russia is to displace Germany as Europe’s largest car market. In February, Ford, GM and Volkwagen announced new joint ventures to produce more cars in Russia.

    Russians spend now, because they are never certain about the future.

    In one decade, the oil price gyrated wildly - from a low of $8 a barrel in 1998 to a peak of $147 in 2008.

    Looking at the long term, analysts say Japan's nuclear crisis may benefit Russia by pushing the world energy pendulum away from nuclear toward natural gas. Germany imports almost half of its gas from Russia. Even before the crisis, Russia was investing to increase gas production by 50 percent over the next 20 years.

    The downside is that high prices ease pressures to cut corruption, to diversify the economy and to lighten the hand of government on business.

    Chris Weafer, chief strategist with Uralsib Capital, fears that the new flood of oil earnings is leading the Kremlin to slow its privatization program.

    “We have seen it in the Gulf Arab countries. and we saw it in Russia in the last 10 years that as the oil price is rising governments talk about the need for reform and using the money wisely, but as the price goes up too high, the whole process slows down, people become complacent, they become lazy, they live the good life as it were, until the collapse comes,” he said. “And then then whole process starts again.”

    In public opinion polls, corruption rivals food prices as the number one public complaint for Russians. According to Transparency International, Russia is the most corrupt of the Group of 20 major economies.

    Last week in a speech in Moscow, U.S. Vice President Joe Biden clearly warned Russia that corruption scares away investors.

    “No amount of government cheerleading or public relations or U.S. support or rebranding will bring wronged or nervous investors back to a market they perceive to have these shortcomings,” he said. “Only bold and genuine change.“

    As Biden spoke, new economic data came in. Despite the oil price rises, despite the run up in the Russian stock markets, the country suffered a net loss in investment capital in February.

    “Despite the stock market and despite the oil prices, people are still very skeptical that there is going to be material change in Russia,” said strategist Chris Weafer. “Right now, they are voting with their wire transfers."

    Another cloud on Russia’s horizon is demographic. Over this decade, the Russian workforce is expected to shrink by 10 million people, or 15 percent.

    Solutions are not popular: raising the retirement age, increasing immigration, and raising productivity through more foreign investment. And those measures will not be taken until after Russia’s presidential election - one year from now.

    You May Like

    Post-White House, Obamas to Rent Washington Mansion

    Nine-bedroom home is 3 kilometers from Oval Office, near capital's Embassy Row; rent estimated at around $22,000 a month

    Red Planet? Not so much!

    New research suggest that Mars is in a warm period between cyclical ice ages, and that during Ice Age Maximum over 500,000 years ago, the red planet was decidedly ice, and much whiter to the naked eye.

    Taj Mahal Battles New Threat from Insects

    Swarms of insects are proliferating in the heavily contaminated waters of the Yamuna River, which flows behind the 17th century monument

    This forum has been closed.
    Comments
         
    There are no comments in this forum. Be first and add one

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Vietnamese-American Youth Optimistic About Obama's Visit to Vietnami
    X
    Elizabeth Lee
    May 22, 2016 6:04 AM
    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video Vietnamese-American Youth Optimistic About Obama's Visit to Vietnam

    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video First-generation, Afghan-American Student Sets Sights on Basketball Glory

    Their parents are immigrants to the United States. They are kids who live between two worlds -- their parents' homeland and the U.S. For many of them, they feel most "American" at school. It can be tricky balancing both worlds. In this report, produced by Beth Mendelson, Arash Arabasadi tells us about one Afghan-American student who seems to be coping -- one shot at a time.
    Video

    Video Newest US Citizens, Writing the Next Great Chapter

    While universities across the United States honor their newest graduates this Friday, many immigrants in downtown Manhattan are celebrating, too. One hundred of them, representing 31 countries across four continents, graduated as U.S. citizens, joining the ranks of 680,000 others every year in New York and cities around the country.
    Video

    Video Vietnam Sees Strong Economic Growth Despite Incomplete Reforms

    Vietnam has transformed its communist economy to become one of the world's fastest-growing nations. While the reforms are incomplete, multinational corporations see a profitable future in Vietnam and have made major investments -- as VOA's Jim Randle reports.
    Video

    Video Qatar Denies World Cup Corruption

    The head of Qatar’s organizing committee for the 2022 World Cup insists his country's bid to host the soccer tournament was completely clean, despite the corruption scandals that have rocked the sport’s governing body, FIFA. Hassan Al-Thawadi also said new laws would offer protection to migrants working on World Cup construction projects. VOA's Henry Ridgwell reports.
    Video

    Video Infrastructure Funding Puts Cambodia on Front Line of International Politics

    When leaders of the world’s seven most developed economies meet in Japan next week, demands for infrastructure investment world wide will be high on the agenda. Japanese Prime Minister Shinzo Abe’s push for “quality infrastructure investment” throughout Asia has been widely viewed as a counter to the rise of Chinese investment flooding into region.
    Video

    Video Democrats Fear Party Unity a Casualty in Clinton-Sanders Battle

    Democratic presidential front-runner Hillary Clinton claimed a narrow victory in Tuesday's Kentucky primary even as rival Bernie Sanders won in Oregon. Tensions between the two campaigns are rising, prompting fears that the party will have a difficult time unifying to face the presumptive Republican nominee, Donald Trump. VOA national correspondent Jim Malone has more from Washington.
    Video

    Video Portrait of a Transgender Marriage: Husband and Wife Navigate New Roles

    As controversy continues in North Carolina over the use of public bathrooms by transgender individuals, personal struggles with gender identity that were once secret are now coming to light. VOA’s Tina Trinh explored the ramifications for one couple as part of trans.formation, a series of stories on transgender issues.
    Video

    Video Amerikan Hero Flips Stereotype of Middle Eastern Character

    An Iranian American comedian is hoping to connect with American audiences through a film that inverts some of Hollywood's stereotypes about Middle Eastern characters. Sama Dizayee reports.
    Video

    Video Budding Young Inventors Tackle City's Problems with 3-D Printing

    Every city has problems, and local officials and politicians are often frustrated by their inability to solve them. But surprising solutions can come from unexpected places. Students in Baltimore. Maryland, took up the challenge to solve problems they identified in their city, and came up with projects and products to make a difference. VOA's June Soh has more on a digital fabrication competition primarily focused on 3-D design and printing. Carol Pearson narrates.

    Special Report

    Adrift The Invisible African Diaspora