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> >Russia is accumulating like mad.
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> How much of that is because of high oil prices?
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> Doug
The general consensus is "a lot." In Russia, the general consensus is that also that Putin's fiscal policies, "power vertical," and butt-kicking of the oligarchs helps a lot too. In Western newspapers, the consensus seems to be that Putin's policies have horribly hurt things by imprisoning the brilliant entrepreneur Khodorkovsky and damaging foreign investment by creating a "climate of fear." ;)
Kirill Pankratov, now with the eXile, had an interesting contradictory piece on this a couple of years ago:
Is Russia Really Hooked on Oil? By Kirill Pankratov Published on April 16, 2004
Russian economy recently entered sixth year of fast, uninterrupted growth. After an initial disbelief that it emerged so strongly in the wake of the financial crisis of 1998, a grudging acceptance set in - that the growth is visible and real. Many commentaries switched to a new tune – that there is little to its success other than persistently high oil prices of recent years.
Indeed, it is hard to find an article on Russian economy that does not mention “windfall of petrodollars”, or “complete dependence on oil prices” as a driving force of the current growth. The funny thing, though, is that the “oil factor” is claimed much more often – indeed, with almost paranoid persistence - in discourse on Russia than on any other OPEC country, all of which are far more dependent on oil revenues. Does it make any sense?
Not a slightest bit.
The above reasoning involves several myths and often-repeated misconceptions simultaneously: that oil is abnormally expensive in recent times, that Russian economy is extremely vulnerable to a sudden price drop, and that drastic reduction of economy’s dependence on oil and gas exports is absolute necessity. Let’s consider them in some details.
Is oil price outrageously high today? The absolute numbers are impressive, indeed. Recently it was reported that prices overcame the previous all-time high value reached in early 1991 – in the run-up to the first Gulf War. Actually this claim alone should give one a pause about alleging excessive prices: only now they nominally reached a peak of 13 years ago, while general price level today is some 40% higher than in 1991. Indeed, after correcting for inflation, there is nothing special about recent prices. They greatly increased only relative to a very big dip from the late 1997 to early 1999, which was the lowest point in 25 years. In constant 2003 dollars the average price of a barrel from January 1990 to December 1998 was $23.5, while from January 1999 to June 2003 – $26.5, a whole 12% difference (these data I have is for West Texas Intermediate, Ural mix is closely correlated with it). Is 12% such a significant number? Barely a rounding error, if one would recall that the average price of the same oil in 2003 dollars during the decade from 1980 to 1990 was whopping $43/barrel, and the Soviet economy didn’t exactly boom back then. If one takes into account relative weakness of US dollar, recent high absolute prices look even less impressive.
Is today’s price sustainable? With rapid increase of consumption in two of the world’s most populous and fast-growing economies – China and India (“Chindia story” in the words of some analysts), with a general world-wide economic recovery, with Americans buying ever bigger SUVs to fit their ever growing asses into, with Iraq descending into an utter mess and its oil industry today is symbolized by sky-high plumes of smoke from burning wells and ambushed fuel convoys – is there any reason to look for the oil glut?
This does not mean that periods of cheaper oil are impossible in the future. Oil prices, like those of other commodities, are notoriously difficult to predict. In early March 1999 The Economist magazine famously proclaimed in its cover story “the end of expensive oil” – that the quarter-century spell of high prices finally came to a close. It even suggested a complete change of strategy for the low-cost Persian Gulf producers: instead of limiting output with OPEC quotas they should flood the market, so that prices would drop to $5/barrel, thus eliminating competition from other producers whose extraction costs are higher. Oops. Many predictions in history have gone awry, but not every bad oracle managed to catch such perfect timing: in the same week that The Economist came out with “cheap oil” issue, prices began their steady rise from around $12/barrel to some $35/barrel in the fall of 2000. It is possible, of course, for prices to swing suddenly in another direction, but with current trends it seems very unlikely.
The second myth is that Russia is extremely dependent on oil and gas, and most of the improvement in the Russian economy in the last few years can be attributed to high oil prices. Should these prices return to 1998 level, the economy will find itself in a huge trouble again.
Is it really so? Russian budget is balanced at about 18 dollars per barrel. The bloated, inefficient Saudi Arabia can barely get even at $26, despite world cheapest extraction costs. Saudis and the likes have pretty much negative economy outside of oil sector: they hire millions of foreigners to perform ordinary tasks (short of picking their noses) that citizens of even the richest countries usually do themselves.
In the years 1995-1998 Russia begged and borrowed from abroad on average $15 billions a year and still could not balance the budget. In the last five years it paid out nearly the same amount of foreign debt annually without refinancing, added around $15 billions of hard currency reserves each year and even after that it has a regular budget surplus, part of which is now channeled into a special stabilization fund. This altogether constitutes almost $50 billion a year on average fiscal turnaround since the August 1998 crisis. At most 20-25% of this turnaround can be attributed to somewhat higher oil prices, much of the rest – to general improvement in economy and policies. The foreign debt problem in the same period changed from almost intractable to practically nonexistent.
And more: http://www.untimely-thoughts.com/index.html?cat=3&type=3&art=500
Nu, zayats, pogodi!
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