INFOGRAPHIC: a crude problem for Putin’s Russia
Western sanctions against Russia that stemmed from the events in Ukraine have not yet put a significant dent in the country’s economy or changed their plans abroad. However, over the last three months, the slumping price of crude oil may be the factor that finally makes Moscow blink.
While Brent oil has traded throughout the year at around $110/bbl, it is only recently that the price has dropped to closer to $85. A combination of items have contributed to crude’s steep drop including a stronger US dollar, slowed economic growth in Europe and China, and increased US shale oil and gas production.
Some countries benefit from having oil as a cheaper input, but Russia is not one of them. Russia is the second largest exporter of oil selling 7.2 million bpd in global markets, which equates to about 45% of Russia’s budget revenues. Deutche Bank has calculated the breakeven price for Russia’s fiscal situation at an oil price at $102/bbl.
The impact of this is already showing up in the Kremlin’s finances. Not only does Russia forgo extra revenue towards its budget, but it also hurts the exchange rate of the country’s currency. So far this month, Russia has spent upwards of $7 billion propping up the rouble, which is trading at record lows.
A previous crash in oil prices in the 1980s was at least partly responsible for bankrupting the Soviet Union, and this time the stakes could also be high. Putin’s support will stay high as long as business is good and the country keeps its pro-Russia stance. However, it remains to be seen what kind of pressure that a more long-term low oil environment will put on Putin and his administration.
By: Jeff Desjardins
Opening graphic from: RadioFreeEurope