Rising Oil Prices Buoy Russia’s Economy, Despite Sanctions
Posted January 18, 2018 4:34 p.m. EST
MOSCOW — In Russia, as in Texas and other energy dependent regions around the globe, a rising tide (of oil) lifts all boats.
That helps explain why on Thursday, as four U.S. senators asked the State Department and other government agencies to blacklist two senior officials, the Russian stock market rose.
It was not the prospect of more sanctions, of course, that was buoying the Moscow markets but the global price of oil, which has been soaring to heights not seen in several years.
“Sanctions are important, that is for sure, especially for the market and for debt and equity investors, but for GDP and the life of ordinary Russians, oil is far more important,” said Vladimir Osakovskiy, chief economist for Bank of America Merrill Lynch in Moscow, referring to Russia’s gross domestic product.
Rising global oil prices, which hit a three-year peak last week above $70 a barrel, are brightening Russia’s once gloomy outlook.
Goldman Sachs has forecast economic growth of 3.3 percent for 2018, well above even the government’s own estimates. Consumer spending is picking up. Inflation has dropped to 2 percent, a level once unimaginable for Russia.
For years, Russian government officials have argued that the country’s pariah status and Western sanctions were not having much effect.
But in a sign of how quickly Russia’s economy has turned around, the country’s economic development minister wound up this week actually trying to tamp down what he described as too-rosy expectations of a strong recovery, such as the one outlined in the forecast by Goldman.
“I think that, for now, there’s no basis for such optimism,” the minister, Maksim S. Oreshkin, told reporters at the Gaidar Forum, an annual economic conference in Moscow.
To be sure, nobody is predicting a return to the oil boom years, and sanctions imposed by the European Union, the United States and other nations have hobbled important state-owned companies and banks.
Yet the oil price rise in the first weeks of the year, if it persists, could shift the economic landscape for Russia and outweigh the ill effects of sanctions.
The price rise so far, for example, is outweighing any negative effects on the Russian economy from the threat of new sanctions from the United States for the Kremlin’s election meddling.
In compliance with a law Congress passed last summer, the Treasury Department is expected to release on Jan. 29 a blacklist of Russian businessmen deemed close politically to President Vladimir Putin.
On Thursday, four Republican senators, Roger Wicker, Marco Rubio, Cory Gardner and Lindsey Graham, urged the State Department and other agencies to expand the blacklist with the inclusion of two senior business and government figures — Alisher B. Usmanov, a metals magnate and onetime investor in Facebook, and Yuri Y. Chaika, Russia’s prosecutor general.
But the global price of petroleum products like oil and natural gas, which account for about 50 percent of Russia’s exports, have a greater sway over Russia’s economy than sanctions imposed after the Ukraine crisis and meddling in the U.S. election, economists say.
“Cheap loans are unavailable to most Russian companies,” because of sanctions, Aleksander Y. Abramov, a professor at the Russian Academy of National Economy and Public Administration, said in a telephone interview. “But that is a midterm problem. In the short-term, the rising oil prices are a factor for growth.”
Also, Russia’s economy grew last year despite a production-cutting agreement with the Organization of the Petroleum Exporting Countries. That deal remains in effect, but rising global oil prices suggest it could be unwound sometime this year, further helping Russia’s economy.
In Russia, as in other petroleum-dependent countries, high oil prices have often proved to be a curse. With plenty of money, there is no incentive for the government to spur growth in nonnatural resource sectors, while the strong currency that comes with the influx of petrodollars makes it hard for other Russian industries to compete globally.
Historically, periods of low oil prices have been associated with market liberalization in Russia, beginning with the Soviet-era reforms of perestroika and glasnost under Mikhail S. Gorbachev in the 1980s and continuing with the introduction of a flat tax and other business-friendly measures at the turn of the century.
High oil prices, in contrast, have correlated with political repression and assertive foreign policy moves in Moscow, from the invasion of Afghanistan in 1979 to the war in Georgia in 2008 and the intervention in Ukraine in 2014.
Unfortunately, from a Western perspective, that correlation seems to have broken down lately, with Putin steadfastly refusing to yield to Western pressures despite the three-year slump in oil prices.
The average Russian is expected to benefit from the oil price rise in one direct way. After the presidential election in March, the government was expected to announce an unpopular overhaul of the pension system that analysts say is necessary for longer-term growth. Russia currently has one of the world’s lowest retirement ages, 55 for women and 60 for men. (At 71.87 years, it also has one of the developed world’s lowest life expectancies.)
Under the new rules, the retirement age for both men and women was set to rise to 65. But that now seems less likely, as the government is predicting a budget surplus.