• 3 minutes Could Venezuela become a net oil importer?
  • 7 minutes Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 12 minutes Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
  • 5 hours Oil prices going Up? NO!
  • 2 days Could Venezuela become a net oil importer?
  • 7 hours Renewables to generate 50% of worldwide electricity by 2050 (BNEF report)
  • 6 hours Reuters: OPEC Ministers Agree In Principle On 1 Million Barrels Per Day Nominal Output Increase
  • 2 days Gazprom Exports to EU Hit Record
  • 12 hours Oil prices going down
  • 15 hours Could oil demand collapse rapidly? Yup, sure could.
  • 2 days Oil Buyers Club
  • 2 days Why is permian oil "locked in" when refineries abound?
  • 13 hours Tesla Closing a Dozen Solar Facilities in Nine States
  • 5 hours China’s Plastic Waste Ban Will Leave 111 Million Tons of Trash With Nowhere To Go
  • 12 hours Saudi Arabia turns to solar
  • 2 days EVs Could Help Coal Demand
  • 3 hours Are Electric Vehicles Really Better For The Environment?
  • 1 day Russia's Energy Minister says Oil Prices Balanced at $75, so Wants to Increase OPEC + Russia Oil by 1.5 mbpd
  • 14 hours Battle for Oil Port: East Libya Forces In Full Control At Ras Lanuf
Alt Text

The Decisive Battle For Yemen’s Oil Port

Saudi Arabia and its Arab…

Alt Text

Oil Majors Undeterred By Brazilian Turmoil

Brazil’s latest offshore auction shows…

Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

More Info

Trending Discussions

Can Russia Break Its Oil Dependence?

Russia

Despite improving oil prices, Russia’s economic growth is slowing, with GDP rise for the third quarter at 1.8 percent on an annual basis, versus 2.5 percent for the second quarter, Russia’s state statistical bureau, Rosstat, said earlier this week. Analysts say it’s the latest indication that Russia’s economy needs major reforms.

Let’s state the obvious: Russia needs an economy overhaul that will reduce the contribution of oil to its budget revenues. This overhaul is something that the central bank governor Elvira Nabiulina put a price tag on last year, warning that without it, GDP won’t be able to grow at a rate of more than two percent even if oil prices jump to $100 a barrel.

There is ongoing work on that overhaul, but it needs to speed up. Even so, analysts have points to make regarding that Q3 figure, and these notes aren’t about oil. For starters, Capital Economics says the reason for the GDP growth deceleration was a slowdown in the growth of the industrial production sector. Then, Goldman Sachs pointed out that when adjusted for calendar differences, the Q3 GDP increase was actually 2.4 percent on the year.

Now, some would say that for a country that only came out of a fairly serious recession late last year, Russia isn’t doing too poorly. It’s certainly not as dependent on oil revenues as some observers would like to believe. In fact, Russia is becoming the dominant force on another commodity market: wheat. Agriculture as a sector is a top priority for the Kremlin, especially in the aftermath of European sanctions that Russia responded to in-kind, banning a lot of food imports from the EU.

 Diversification is good, but Russia’s current economic growth isn’t a result of diversification of revenue streams, but of greater consumer spending—and this consumer spending, analyst Leonid Bershidsky says, is built on borrowing. Related: China Resumes Oil Hoarding Despite Higher Prices

Russia has seen an increase in real wages for more than a year now. This year, the central bank reduced interest rates as the economy got back on a growth track. Consumers are more confident. This has prompted consumers to borrow more, Bershidsky explains. They borrow more to spend more, on everything from food to real estate.

This state of affairs is actually sustainable, analysts note, but it doesn’t make for growth acceleration. Higher oil prices aren’t helping, either. It’s the same as with Saudi Arabia and all the other large producers: the higher the price of oil, the greater the temptation to slip back into the rut you’ve known for decades.

Can Russia resist the temptation? It’s hard to say, but it certainly has a strong motivation to do just that. Not just because of Nabiulina’s warnings, but because the fruits of diversification are evident: this year, Russia became the world’s largest wheat exporter. Perhaps too much of a focus on commodities is unhealthy for the long run, but on the other hand, if you’re rich in commodities why not put them to the best use you can?

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment
  • Lee James on November 15 2017 said:
    I have long thought that for Russia, Oil is the goose that laid the golden egg. Oil makes possible a primary national emphasis on arms production. It's even connected to current expansion in the Mid-East --- more oil! Cyber-theft will take the place of a lot of costly industrial R&D and competition. Seems like a plan that can work for some time. After-all, the world is hooked on fossil fuel.

    Now, if only the West would be less aware of what's taking place so that oil can continue to fuel an expanding Russia, as guided by a strong man who uses export dollars from the West to undo the West.

    It's like Lenin said, the West will hang itself, and they'll even buy the noose!

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News