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

Philippines, Muslim Rebels Try to Salvage Peace Pact

Peace process faces major setback after botched military operation to find terrorists results in bloody gunbattle between government forces, Moro Islamic Liberation Front fighters More

Republicans Expect Long, Expensive Presidential Battle

Political strategist says eventual winner will be one who can put together strongest coalition of various conservative groups that make up Republican Party More

Video New Wheelchair Is Easier to Use, Increases Mobility

Engineers have come up with a lever-operated design that makes use of easily accessible bicycle technology More

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.
Liberia's Almost Last Ebola Patient Grateful but Still Grievingi
X
Benno Muchler
March 26, 2015 3:41 PM
Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video US, South Korea Conduct Joint Military Exercises

The Eighth U.S. Army Division and the Eighth Republic of Korea Mechanized Infantry Division put on a well orchestrated show of force for the media this week during their joint military training exercises in South Korea. VOA’s Seoul correspondent Brian Padden was there and reports the soldiers were well disciplined both in conducting a complex live fire exercise and in staying on message with the press.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.
Video

Video Young Filmmakers Shine Spotlight on Giving Back

A group of student filmmakers from across the United States joined President Barack Obama at the White House this month for the second annual White House Student Film Festival. Fifteen short films were officially selected from more than 1,500 entries by students aged 6 through 18. The filmmakers and their families then joined the president and a group of celebrities for a screening of their films. VOA’s Julie Taboh reports.
Video

Video VOA Exclusive: Interview with Afghan President Ashraf Ghani

Afghan President Ashraf Ghani, during his first visit as president to Washington, gave a one-on-one interview with VOA Afghan Service reporter Said Suleiman Ashna, about his request for a change in U.S. troop levels, the threat from the Islamic State, and repairing relations with the United States and Pakistan. The interview was held at Blair House, late Sunday, in Pashto.
Video

Video California Science Center Tells Story of Dead Sea Scrolls

The ancient manuscripts were uncovered in the mid-20th century, and they are still yielding clues about life and religious beliefs in ancient Israel. As VOA's Mike O'Sullivan reports, an exhibit in Los Angeles shows how modern science is bringing the history of these ancient documents to life.
Video

Video Angelina Jolie Takes Another Bold Step

Hollywood actress and filmmaker Angelina Jolie has revealed she had her ovaries and fallopian tubes removed to lower her odds of getting cancer. Doctors say the huge publicity over her decision will help raise awareness about the importance of cancer screening. VOA’s George Putic has more

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More