Vladimir Putin’s economic hopes drowning in a puddle of cheap oil

It would perhaps be wise not to sing and dance over this story too early. Vladimir Putin likely has more tricks up his sleeve, such as continuing to undermine the US Dollar by trading oil in currencies other than the US Dollar, or continue hacking into the U.S. banking system — lest we also forget along with China threatening the nuclear option on it. If the Dollar becomes worthless, it wouldn’t matter how low the price of oil will go as America would be pushed into being a third-world nation like those in the Middle East where gasoline is still only 15 cents per gallon.


Oil has been the key to Putin’s grip on power since he took over from Boris Yeltsin in 2000, fueling a booming economy that grew 7 per cent on average from 2000 to 2008.Now, with economic growth slipping close to zero, Russia is reeling from sanctions by the U.S. and the European Union over its land grab in Ukraine, and from a ruble at a record low. Putin, whose popularity has been more than 80 per cent in polls since the annexation of the Crimean Peninsula in March, may have less money to raise state pensions and wages, while companies hit by the sanctions also seek state aid to maintain spending.

“His ratings remain high but for a person conducting such a risky policy, Putin has to understand the limits of patience for the people, business and political elite,” said Olga Kryshtanovskaya, a sociologist studying the country’s elite at the Russian Academy of Sciences in Moscow. “Putin is thinking hard how not to lose face while maintaining his support.”

The curbs will subtract 1 per cent to 1.5 per cent from GDP and are a bigger threat than oil prices, according to Alexei Kudrin, the finance minister from 2000 to 2011 who steered Russia’s accounts back to surplus.

“The sanctions are having an across-the-board impact,” Kudrin said by phone. “It isn’t just about the loss of money but the worsening investment climate, rising capital flight and a slide in the currency.”

Russia faces weak growth even if the EU sanctions expire next year as expected, Charlie Robertson, the chief economist at Renaissance Capital Ltd., said by phone. The International Monetary Fund earlier this month reduced its 2015 forecast for Russia to 0.5 per cent from 1 per cent in July.

Contraction Foreseen

“Growth is virtually nonexistent this year and isn’t terribly much better next year,” Robertson said Oct. 10, adding that the economy could contract 1.7 per cent in 2015 if crude averages $80 a barrel.

Putin, 62, a former KGB colonel, has criticized the U.S. and Europe for expanding the North Atlantic Treaty Organization up to Russia’s borders, and he has vowed to keep neighboring Ukraine out of the Cold War-era military alliance.

Top Kremlin officials said after the annexation of Crimea that they expected the U.S. to artificially push oil prices down in collaboration with Saudi Arabia in order to damage Russia, according to Khryshtanovskaya. Putin’s spokesman, Dmitry Peskov, didn’t respond to a request for comment on this issue, nor did he respond over four days of calls requesting comment about oil’s importance to Putin.

“Prices are being manipulated,” state-run Rosneft’s spokesman Mikhail Leontyev said Oct. 12 in an interview with Russkaya Sluzhba Novostei radio. “Saudi Arabia has started offering big discounts on oil. This is political manipulation, manipulation by Saudi Arabia, which can end badly for it.”

If Putin is concerned about the state of Russia’s economy, he isn’t showing it.

“The state is ready to support those sectors and companies that faced unjustified external sanctions,” the president said at a banking forum in Moscow Oct. 2, adding that the measures would help strengthen Russia’s resolve to boost growth.

If crude prices remain depressed, the Kremlin could cut social programs and pressure businessmen to maintain full employment, Clifford Gaddy, an economist specializing in Russia at the Brookings Institution in Washington, said by phone.

More Prepared

“This regime is more consciously prepared to deal with low oil prices than either the Soviets or the authorities in the 1990s,” Gaddy said. “It’s possible that they are over- extended, but Putin is a strategic planner who has certainly considered life at various price points.”

Full article: Vladimir Putin’s economic hopes drowning in a puddle of cheap oil (The Vancouver Sun)

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