Caught between plunging oil prices and Western sanctions, the Russian economy is reeling. That truth is so apparent that even a former Russian finance minister seems willing to publicly acknowledge it. Reuters reports:
“Today, I can say that we have entered or are entering a real, full-fledged economic crisis. Next year we will feel it clearly,” [former finance minister Alexei Kudrin] told a news conference. “The government has not been quick enough to address the situation…I am yet to hear…its clear assessment of the current situation.” […]Russia has been hit by what Economy Minister Alexei Ulyukayev called a “perfect storm” of plummeting oil prices, sanctions and a flight of investors’ capital, made worse by a lack of structural reforms that means the economy is overwhelmingly dependent on oil revenues.
Of the two, the recent oil rout is by far the greater threat to Russia’s economy. A sustained bull market has hidden some glaring problems in Russia’s oil and gas sector, but with global supply so far ahead of demand, those problems are being laid bare. Though it isn’t an OPEC member, Russia is without doubt a petrostate, yet for a nation that depends so heavily on the revenues generated through oil and gas sales, it has done a remarkably poor job at reinvesting in new oil and gas finds. Just last year, Gazprom’s CEO still seemed to be in denial about the transformative power of fracking, and Moscow has been very slow to develop its Siberian shale reserves.Russia reaped the benefits of $100+ per barrel oil prices, but it grew complacent. That’s now coming back to bite Putin in a very big way.