If world oil prices do indeed crash, it is believed that Russians will panic and the country’s private capital exports will accelerate dramatically. A drop in oil prices will not be matched by the required cut in imports and to restore fiscal balance the Kremlin will have to decide whether to raid their foreign reserves or cut their expenditure on imports by half. The result would lead to a sharp devaluation of the ruble, a drop in consumer confidence and a surge in inflation. Analyzed on an annual basis, the country’s export revenue would expect to fall by $158 billion, (8% of Russian GDP, calculated at current exchange rates). Such a deficit would see the Russian federal budget lose a trillion rubles in income.
History tells us that Mr. Putin is quite within his rights to speculate on rising oil prices. Since 2003 crude has only fallen once, in late 2008 and early 2009. Apart from this, the most turbulent months of the economic downturn, confidence and demand has remained high. The fact remains that this trend is impossible to maintain. If oil prices soon hit $130-$150 a barrel, calls for the swift introduction of a new, cost-effective alternative energy source will continue to gather momentum. The increased importance of finding alternative fuels is highlighted by the two industrial superpowers in the world today, U.S.A and China who spend close to 3% of GDP on importing oil, $450 billion and $200 billion respectively.
Shelin, S. (2012) Putin Without Oil, [online], Available: http://en.novayagazeta.ru/business/52381.html