if not, what are the _other_ sources of Russia's success?
> 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?
could it be that unlike those other countries, Russia was considered to be an economic basketcase just a few years ago, after the collapse of the USSR?
> 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.
which price level? the Russian one?
also, the economy that Russia had in early 1991 was extremely different from the current one, since there was still a USSR.
> 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).
why does he choose 1999-2003 as his baseline for comparison?
> 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 [the] relative weakness
> of US dollar, recent high absolute prices look even
> less impressive.
but the USSR economy had a lot of other things going on (like manufacturing) that Russia doesn't seem to have now, didn't it? Whatever one thinks of the old Soviet economy, it was diversified, unlike the current Russian one.
The thing about not being diversified is that the demand for oil is quite inelastic in the short- to medium-run, so that a fall in prices leads to a fall in export earnings. Supply is pretty inelastic, too, so that a small fall in demand or a small increase in supply can have a big effect on prices.
also, a 12% increase in oil prices could mean a lot if most of foreign exchange revenues come from selling oil.
> 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?
what about a general crisis of overproduction on the world level? Ooops, I forgot that those kinds of things never happen in this brave new neo-liberal world.
> ... 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.
so what is happening to the Russian economy outside of oil? what do they export?
> 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.
it's good that Russia has used oil funds to pay off its external debt. But to what extent have revenues gone to diversify the economy and to promote long-term, non-oil-related, growth? -- Jim Devine / "There can be no real individual freedom in the presence of economic insecurity." -- Chester Bowles