Russia’s GDP failed to improve as lower oil prices and Western sanctions hamper growth. Oil prices increased in the past year, but not enough for Russia to secure economic prosperity. The Moscow Times notes that the ruble strengthened to over 60% compared to the dollar, but has failed to enhance the economy thus far.
The World Bank has warned that poverty rates in Russia will return to the rates they reached in 2007 as the nation’s economy continues to contract, inflation rises, and individual purchasing power diminishes. These conditions underscore the belief, common in the former Soviet nation, that the ordinary people in Russia are once again bearing the brunt of the nation’s poor economic climate.
In recent days, signs of a possible breakthrough in the yearlong standoff between Russia and Saudi Arabia on crude production strategy have emerged. Saudi Arabia, OPEC’s dominant member, has long insisted OPEC (read Saudi Arabia) would not reduce output to balance supply and demand absent corresponding cuts from non-OPEC members (read Russia), while Russia has consistently insisted harsh climactic conditions prevent Russian producers from reducing output and in any case Russia insists it could withstand low prices as well as any other country.
When oil prices began to decline in 2016, Russia’s oil-dependent economy began to slump. Unfortunately, that slump does not appear to be righting itself very quickly, and may even deepen with the introduction of long embargoed Iranian oil to the market this year. As a result, the International Monetary Fund (IMF) has again slashed its forecast for Russia, downgrading it into an ongoing recession through the end of 2016 and beyond.
The Russian state issued a mandate forcing departments to slash spending by 10 percent as low oil prices plague the country’s finances, according to The Economic Times. Russia’s federal budget relies on high oil prices to make ends meet, and the added burden of western sanctions has not helped matters. Russian shares fell 5.0 percent this week due to lower energy prices and Asian market instability.
Former Finance Minister Alexei Kudrin warns that Russia needs to implement structural reforms to save the economy, according to CNBC. He suggests such measures as infrastructure spending, pension reform and decentralization of the budget as useful alternatives that could lead to growth. Kudrin also expressed concern that politicians refuse to take such drastic steps as 2018 elections draw near. The oil market dropped to its lowest price since 2009 this week.
The Russian economy contracted 4.3 percent in the third quarter, as economic sanctions continue to plague the economy, according to AFP. Russia was also hit hard by falling oil prices and low spending levels not seen in 15 years. In addition, household income plummeted 9.7 percent in September and 9.8 percent in August. The International Monetary Fund notes that Russia could lose 9.0-percent GDP from Western-imposed sanctions.
The sudden launch of Russia’s military operations in Syria late last month caught the United States and regional players by surprise. It began with an announcement that defined the primary objective of the mission as a confrontation with the Islamic State (ISIS) in cooperation with the Syrian government of President Bashar Assad.
The sanctions against Russia are working; but not for Russia, Ukraine, the EU, or even the US. In the 2nd quarter, Russia’s GDP contracted 4.6 percent from a year earlier, following a 2.2 percent contraction in the 1st quarter. There were expectations of a severe contraction after the selloff in oil, currency crisis and the consequent plunge of consumer demand. But the plunge was worse than anticipated and most since 2009.
The United States Geological Survey has estimated that the Arctic regions contain around 130 billion barrels of liquids and 47 trillion cubic metres of gas, equivalent to 22% of the world’s undiscovered hydrocarbon resources. It is hardly surprising then that all the countries whose coasts encircle the region, the US, Canada, Greenland, Norway and Russia, have made claims on territory outside of the clear boundary for each, which stretches 200 nautical miles from their shoreline.
