The Ministry of Economy said that the Russian GDP in June fell by 4.2% compared to last year. The deepest peak since 2009, the year of the global crisis. Low oil price is the main reason. But some say that it is also a result of Western sanctions. That’s why that figure could be behind the Russian change of strategy in Ukraine.
Optimism about the state of the Russian economy shattered against the figures released by the Ministry of Economy this week. The figure of 4.2% is in line with that of the first quarter, released by the central bank in April and confirms the fears – and the dire prophecies – of a black 2015 for Moscow.
The curious fact is that the contraction of the country’s wealth is exactly equal to that which is going through Ukraine, struggling with a war that costs almost $ 10 million a day, and with the emergence of 1,5 millions of IDPs. The comparison is not so far-fetched. According to many, in fact, to bring in red accounts Russians are two main factors, the price of crude oil and the economic sanctions of the US and Europe in response to the Anschluss of Crimea and the covert war in Donbass.
The $ 100 a barrel economy
To ensure that the first of the two reasons is in itself valid, just take the graphics of the oil price, GDP and the exchange rate ruble / dollar and stack them.
And the explanation is simple. If we have a look at the oil producing countries list, in terms of oil exports,
Russia is second only to Saudi Arabia, both generating almost one-fifth of all global exports. To have an idea, the United States rank only 47th, despite being second world producer, due to their huge demand for energy. With such a scenario, a low price of crude oil heavily damages 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. What about the sanctions?
Change of strategy
We’ll never know the figure. Among sanctions and counter-sanctions, among those who say that affect the economy and those who say that they stimulate it, and who says that they hurt us more than them, it is virtually impossible to quantify the cost Moscow is paying. But we can try to guess it.
Discarding the fanciful hypothesis that barring orders and imports from Europe would stimulate Russian industries to modernize, we can bet that with this economic situation it would be much better not to have sanctions at all. Moreover, between the lines of ostentatious and proud superiority, Russian diplomacy has long worked to not have them extended and, eventually, to have them lifted. In addition, there is who swears that the change of strategy in Donbass is the most visible effect. Having renounced to expansion in the east, having shelved the Novorossija project, and indeed having repeatedly claimed the territorial integrity of Ukraine, the Kremlin relies entirely on Minsk agreements to act as the bearer of peace and have sanctions lifted.
Having put a tombstone on annexation of Crimea – that seems out of any agenda – the US and EU are pandering.
@daniloeliatweet
The Ministry of Economy said that the Russian GDP in June fell by 4.2% compared to last year. The deepest peak since 2009, the year of the global crisis. Low oil price is the main reason. But some say that it is also a result of Western sanctions. That’s why that figure could be behind the Russian change of strategy in Ukraine.
