There is a fascinating theory that links the fall of the Soviet Union to the collapse of oil prices in the 80s of last century. And there is a widespread opinion among economists and Kremlin experts that today’s Russia is based on the price of crude oil. They call it “the one-hundred-dollar-a-barrel country.” History sometimes repeats.
Last Thursday, OPEC decided not to cut oil production, as they usually do when the price per barrel marks a downward trend that shows no sign of stopping. OPEC is a mainly Middle-eastern organization, being in fact led by Saudi Arabia. Neither the United States (the largest oil producer, second to Saudi Arabia) nor Russia (third, according to the 2012 data, but first according to 2013 estimated data) are members. The decision was seen differently by observers, both as a Saudi move to harm the United States, which have a high production cost, and an American backed move to harm Russia, whose economy directly depends on the price of crude oil. Let’s try to see how.
The 100 USD economy
If we have a look at the oil producing countries list, in terms of oil exports, things change. Russia is second to Saudi Arabia – both generate almost one-fifth of all global exports – while the United States rank only 47th, due to their huge demand for energy. In addition, Saudi Arabia provides about 15% of all the US oil import. With such a scenario, a low price of crude oil is almost an advantage for America while seems to mainly damage Saudis and Russia.
Russian economy literally relies on the export of energy, which accounts as much as 65% of the entire exports and 35% of national GDP. To get an idea of the dependence of the Russian economy from the sale of oil and gas, just think that the multi-annual budget break-even is set to a price of crude oil at $ 100 per barrel. And the price of gas, the other main Russian export good, is pegged to oil price.
It is clear that, with a price of about $ 60 per barrel, in the medium and long term the numbers do not add up.
The pact with Russians
According to many historians, the decline in crude oil prices in the 80s of the twentieth century has played a decisive role in the implosion of the USSR. From that point of view, todays Russia is not much different from the Ussr. Indeed, in some ways is even more fragile. The ruble is subject to fluctuations in exchange rates – unlike its Soviet ancestor – and on that front, things are going pretty bad. Moscow has to import virtually everything from light industry products to fruit, and it costs more and more.
Even the relationship between citizens and power is not very different from the days of the USSR. The strong popular support built by Putin during the last 15 years is mainly based on a pact with the Russians: I give you back the pride of living in this country and you give a bit of freedom up, I give you stability and you give up the democratic control over the institutions, I distribute the wealth and you do not criticize the method I use. It is basically the same deal made with the oligarchs: I let you enrich and you do not question my power.
Now that the golden goose threatens to stop brooding, the oligarchs could demand a change at the steering wheel. And the pact with Putin could suddenly not be good for Russians.
There is a fascinating theory that links the fall of the Soviet Union to the collapse of oil prices in the 80s of last century. And there is a widespread opinion among economists and Kremlin experts that today’s Russia is based on the price of crude oil. They call it “the one-hundred-dollar-a-barrel country.” History sometimes repeats.
