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

Ukraine Purges Interior Ministry Leadership With Pro-Russian Ties

Interior Minister Avakov says 91 people 'in positions of leadership' have been fired, including 8 generals found to have links to past pro-Moscow governments More

US Airlines Point to Additional Problems of any Ebola Travel Ban

Airline officials note that even under travel ban, they may not be able to determine where passenger set out from, as there are no direct flights from Liberia, Guinea or Sierra Leone More

Nigerian President to Seek Another Term

Goodluck Jonathan has faced intense criticism for failing to stop Boko Haram militants 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.
Talks to Resume on Winter Gas for Ukrainei
X
Al Pessin
October 25, 2014 4:21 PM
Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Talks to Resume on Winter Gas for Ukraine

Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.

All About America

AppleAndroid