Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Politics and Geopolitics / The future of Russia and the world: estimates and projections / Articles
Sunset "a fine oil era." Bet on expensive hydrocarbons in the domestic economy no longer works. Other bets not yet made
Material posted: Publication date: 06-07-2018
The barrel becomes more expensive and the Russian economy is not growing. Rather, growing very slowly. At the end of June 2018, the price of Brent crude oil stabilized at around $ 77 per barrel – about the same as it was in the middle of zero.

But then dear barrel has provided us with a GDP growth of 7-8% per year, and today we barely reach 2%. The pre-crisis level of well-being, the high prices of black gold to the Russians, too, did not return, and if you believe the experts, the new "oil prosperity" does not Shine for us, even if the price of a barrel jumped to $ 100 (but such predictions have). "Profile" has decided to understand, why high oil prices will no longer allow us to live, "before the crisis".

We are all the same, and another world

Like 20 years ago, the domestic economy is critically dependent on fuel and energy complex. According to the Federal customs service, last year production of the fuel and energy complex in the structure of Russian exports increased 63 per cent and the physical volume of fuel and energy products grew by 1.7%. In value terms, the growth orders of magnitude greater, because oil becomes more expensive.

But the reasons for the current upward trend different from what was ten years ago. Then the speculators dispersed prices, believing that the global economy will grow forever and it will need more and more energy. Today, the forecasts about the prospects of the world economy is not so optimistic. Economists are one of the leading global consulting firm, PricewaterhouseCoopers, for example, believe that in the next couple of years, global GDP growth will slow to 2.7% per year, and in 2040‑e slow down to 2.5%. In such a situation, expensive energy are contraindicated.

"One of the most important conditions for the rise of the economy is cheap oil and generally inexpensive raw materials, – says Director of the Institute of globalization and social movements (IGSO) Boris Kagarlitsky. – A sharp jump in oil prices leads to rise in prices of all goods in the world market and eventually kills the demand and undermine economic growth."

In other words, oil is now more expensive despite the market and the main if not the only growth factor is the collusion of the main suppliers: in 2016, OPEC joined them, and Russia has cut production of black gold. That is, the current "good prices", production volumes significantly smaller than before the crisis, therefore, oil revenue is also less, this fact distinguishes the current situation from before the crisis.

And many economists fear that we observed a jump in oil prices will be short-lived – how long producers can manipulate the market? And the downward global economic situation requires cheap barrel.

Only reserve

The Russian authorities seem to understand that "high oil" – it is long, so I try to take her to the max in anticipation of future crises in accordance with the applicable budget rule when the price of oil over $ 40 per barrel of additional oil and gas revenues are transferred to the national welfare Fund and not spent on, say, the strengthening of the national currency.

But a strong ruble and, as a consequence, the availability of imports was the basis of the pre-crisis model of well – being- this is similar to the Director of the Center for the development of the HSE Natalia Akindinova. Remember, the oil is 80 dollars, the dollar to 25 rubles? This will not happen because a weak currency helps the government to implement the increased budget obligations and to Finance mega-projects like the Olympics or the world Cup. Because the export revenues we receive in dollars, and budgetary spending made in rubles. In any case, to strengthen the Russian currency the authorities are not going, as emphasized at the end of June, Finance Minister Anton Siluanov, his Ministry does not see preconditions for significant fluctuations of the ruble.

The time of the decision

However, there are more important circumstances which will not allow us to live as before the crisis. Talked with a "Profile" economists and sociologists say that the cause of the recession of 2014-2015 was not the decline in oil prices, not Western sanctions, and the structural crisis that affected all areas of our economy.

The Director of the Institute of strategic analysis FBK Igor Nikolaev notes that in the first half of 2014, i.e. before the sanctions and with the barrel of 100 dollars, the domestic economy has been stuck – in the first six months GDP growth in annual terms amounted to only 0.8%. And depreciating oil only increased the further drop.

Before the sanctions, according to Nikolaev, they have not yet had a significant impact – estimated FCO is minus one percentage point of GDP. In General, the Russian economy has demonstrated a high adaptability, and have adapted to new environments. Although after the introduction of the new package of restrictions in April 2018 sounded an alarm bell – if the West will continue the pressure, at least private industry can begin to decline. But the main trouble of this confrontation is that sanctions and counter-sanctions can reduce the effectiveness of possible economic reforms, and they are very necessary.

However, the main question, according to the economist, we overcome the structural crisis or not? "Oil prices may rise, but structural imbalances have not gone away. They were saved 2000 years and then turned into recession. High oil prices will save us when we start and actually do something correct from the point of view of structural inconsistencies," – says the expert of the FBC.

Of course, there are objective reasons, which will not allow us to grow as fast as in zero. High growth then, according to Natalia Akindinova, were associated not only with a good global conjuncture, but also with the low base effect, when the Russian economy was recovering from the transformational recession of the 90s.

However, the main condition of achieving sustainable growth today the sides of the "Profile" referred to the elimination of structural imbalances, which include commodity dependence, the priority of defense spending in the budget, high social inequality in society, etc.

About the need to remove the economy from the oil, or rather, the raw needle authorities say since the early 2000s, however, noticeable progress in this direction yet. In 2017 mineral products and primary products (wood, metals and metal products, mineral fertilizers) accounted for 84% of Russian exports. To redress this imbalance, we should increase the share of manufacturing industry products to at least 50%.

This is even more important that our oil industry today is a typical example of monoprovodu with diminishing returns. Most of the new fields is hard-to-recover stocks on margin, much smaller than the fields in Western Siberia. A global market requires more and cheaper hydrocarbons. That is, the more we extract, the less it makes sense.

Thus, the domestic economy is like a computer game character, approached the point of transition to the next level. And the more you delay the moment of decision for this transition, the more chances to winning instead of the Gong a dull "Game over"...

Vladislav Grinkevich


Tags: economy , oil

RELATED MATERIALS: Politics and Geopolitics