In assessing Russian President Vladimir Putin’s ability to stay in power and defy the West, one crucial question is how much longer his government’s finances can stand extremely low oil prices. Judging from an analysis by economists at Deutsche Bank, he might be able to hold out longer than previously thought.
Russia is peculiarly sensitive to energy prices, in part because taxes from oil and gas comprise about half the country’s budget revenues. Hence, after oil prices started plunging in 2014, some economists worried — despite a rainy-day fund worth nearly $90 billion — that the government could run out of money and be forced into severe austerity by the end of this year.
Since then, much has changed. A sharp drop in the exchange rate of the ruble has boosted the local-currency value of energy revenues. And Putin so far has managed to restrain spending without much effect on his popularity rating.
As a result, Deutsche Bank economists estimate that the oil price required to balance the budget this year is about $66 a barrel, down from more than $103 in 2014. Here’s how that looks:
As of Friday, the price of Brent crude stood at about $33 — so Russia is expected to run a sizable budget deficit. Still, at currently projected levels of spending and revenue, the Deutsche Bank folks figure that the government will take more than three years to burn through its reserves. That’s sooner than, say, Saudi Arabia or Iran, but longer than countries such as Colombia, Oman and Nigeria. Here’s how that looks:
To be sure, the fiscal restraint required to stretch out Russia’s resources could yet undermine support for Putin, as pensioners, state employees and the military feel the effects of spending curbs. Also, persistently low oil prices will deepen the country’s recession.
As Bloomberg View has noted, Putin’s authoritarian rule has probably impaired the economy’s ability to recover from such shocks — something Russians may eventually recognize en masse.
That said, as far as Russia’s budget is concerned, Putin is looking a bit more like a survivor.
Mark Whitehouse writes editorials on global
economics and finance. He was previously at
the Wall Street Journal, where he covered
economics in New York and served as a deputy bureau chief in London