Russia on brink of economic disaster

Can Putin save Russia's sagging economy?

Photo by Clive Mason/Getty Images

Russian President Vladimir Putin is facing an economic emergency as the nation’s woes are keeping pace with quickly plunging oil prices. Experts on the Russian dilemma predict Putin has a window of 18 months to shore up the dangerously sagging economy, according to The New York Times Monday.

Tax revenues are taking a big hit as oil and gas prices continue their plunge. Putin and his cabinet’s strategy appear to be cutting spending by ten percent across the board and to rely on national oil reserves until prices hopefully improve.

The New York Times report, “Russia has around $360 billion in foreign currency reserves and some $120 billion in two rainy day funds, down from just under $160 billion a year ago. At current spending rates, however, the two funds are expected to last only 18 months. It might also sell significant stakes in state-run companies like the oil giant Rosneft or Sberbank, and it will not increase military spending.

The nation’s economic crisis will most certainly affect their strained relations with Ukraine and their expensive relationship with Assad of Syria. The global collapse of oil prices is changing Russia’s relationships all over the world. The former Soviet Union is dangerously vulnerable as the economy relies on energy exports for 50 percent of its federal budget.

Furthermore, Russia is presently the world's second largest supplier of crude oil after the Kingdom of Saudi Arabia, according to the International Energy Agency. It should be noted Russia has never been a member of OPEC. In fact, Russia extracted a new record of oil in 2015. It amounted to almost 11 million barrels per day. Impressive numbers, but the massive production will mean very little in the current global glut.

Russia’s economy last year shrank 3.9 percent and inflation hit 12.9 percent. President Vladimir Putin tried to convince a concerned nation that last year was the worst of the recession. Ironically Putin considers the oil-price collapse as an “opportunity” that will wean Russia off energy imports and diversify the economy. Experts remain skeptical.

After Russia’s president delivered this glowing prediction oil fell below $30 per barrel in January. With no bottom in sight, the ruble hit a record low of nearly 85 to the dollar before recovering slightly. The Times reported, "The last time oil prices dropped so low and stayed there, in the 1980s, the Soviet Union disintegrated. Steadily rising prices since 2000 have lifted Russia out of poverty and economic chaos, buoying the prosperity of many Russians with it. Putin was lucky enough to be president for much of that period, but he now faces an extended decline, with real incomes shrinking.”

On a different front, billionaire U.S. financier George Soros recently said Russia's international reserves were sufficient in the near future under unfavorable economic environment. Their international reserves will be enough for two years.