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Is Russia's Economy on the Verge of Collapse?

Filed under: Eastern Europe

The Russian economy has been showing a shaky, creaking vulnerability of late that is surprising even to the jaundiced, cynical observers over at my blog La Russophobe. Despite the fact that the price of oil has soared to stratospheric new highs in recent weeks, approaching $100 per barrel, when the American stock market took a 500-point, 2.5% hit to the Dow Jones Industrial Average last week, famously oil-rich Russia immediately felt a worse ripple effect, with its key average dropping 3.5%. It must send waves of panic through Russian traders to imagine what might have happened to their market if America's had plunged while oil was at a record low. And the recent announcement that Russia is on the cusp of a major liquidity crisis can't help them sleep any better, either.

And there was more horrifying bad news that left no room for Russophile rationalization: Dictator Vladimir Putin announced a wave of Soviet-style price fixing. It's been announced that Russia is facing double-digit consumer price inflation for 2007, and prices may be rising at double that rate on the small basket of foodstuffs and other items that are readily affordable to the mass population, which works for an average wage of less than $4 per hour. It's quite shocking to think that G-8 member Russia needs to resort to the tactics of Zimbabwe strongman Robert Mugabe in order to stave off short-term panic, simply making price rises illegal -- as if that was a way to solve inflation that the other G-8 members never thought of.

And Putin has gone further, implying he believes the price fixing moves won't be enough to guarantee his party's success in upcoming parliamentary elections. He's blocking the arrival of Western monitors to oversee the fairness of the polls, and he's banning outright the participation of key opponents. It's an important election, since it's the means by which Putin proposes to stay in power, taking the lion's share of parliamentary seats and assuming the role of prime minister.

It almost makes it seem that Russian's much ballyhooed oil resources are not all they're cracked up to be. In fact, that's precisely the case.

RIA Novosti reports that Russian Industry and Energy Minister Viktor Khristenko has predicted Russia's oil output for 2007 will be 3.6 billion barrels. This is somewhat more than the U.S., at about 2.8 billion barrels, produces, but real issue in terms of U.S. supply is that the gigantic, dynamic U.S. economy consumes nearly 21 million barrels each day, whereas Russia consumes only about a relatively puny 2.5 million barrels per day - at ten times less, a pretty good reflection of the difference in GDP between the two countries, currently in a ratio of about 12:1.

Russia will consume about 0.9 billion barrels of oil in 2007, so it will have about 2.7 billion barrels available to sell to the world. If it sold all those barrels at the market price (it actually can't do this), and if the market price were $100 per barrel (it hasn't reached that level yet), then Russia would have a gross income of just over $200 billion from its spare oil. Let's say it has only 10% production costs (given Russian corruption levels, that's probably very conservative) -- this would leave about $180 billion for the Kremlin to do as it likes with.

Let's say the Kremlin wanted to divide up that money equally among the people of Russia, for them to better their lives with. Of course, it has no such intention, and will spend the vast majority of this money supporting instability in the Middle East to keep the price of oil high and building up Russia's military so as to prop up the dictatorship. But let's just say.

Russia has 140 million people. So if that $180 billion were divided equally among them, they would each get about $1,200. That would mean each Russian person would have an extra $3.50 per day -- one hour's average wages for a Russian -- to spend on bettering his life. As the common man is concerned, roughly 20% of that figure would be eaten up by inflation, so the Russian would be left with about $2.80 each day to live it up with.

And remember, that $2.80 is the very best case scenario for the Russian. In actual fact, virtually none of this oil "wealth" will be passed on to him by his government, which will instead send some of it to terrorist groups like Hamas and Hezbollah as well as rogue nations like Syria and Iran so they can continue their nefarious activities aimed at destabilizing the Middle East, thus keeping the price of oil high, and use the rest to start a renewed arms race with the United States -- an arms race which will bankrupt Russia just as the first one bankrupted the USSR -- and to maintain the Kremlin's oligarchs in the style to which they are accustomed (the same style enjoyed by the old Soviet politburo).

It hardly matters. That $2.80, after all, wouldn't be enough to solve any of the life-threatening social ills that prevent the average Russian man from living to see his 60th year and cause the Russian population, despite record levels of immigration, to suffer a net loss of up to 1 million people each and every year. Yet, Russia's entire economy hangs on the significance of this sum; without it, Russia is quite simply a third-world state with no conceivable argument for G-8 membership. Its capital markets, and undoubtedly its "president," are only too well aware of this fact, it seems.

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Comments

pedro martinez says:

And what if you're wrong (because it's not like others haven't grossly underestimated Russia in the past)?

By the way, $3.50 an hour today vs. $.60 an hour in 1999. By 2015, therefore, Russians can expect to make $21 an hour and will probably procreate a lot.

You have got to stop this.

La Russophobe says:

You mean like when we thought the USSR would last at least 100 years? The USSR collapsed, why can't Russia? It's ruled by the same KGB, after all.

Why is it that you don't ask what if YOU are wrong?

Did it occur to you that with Russia's crazy inflation $21/hour in 2015 could well be worth less than $3.50 per hour today? Did it occur to you that by 2015 the average wage in the West might be $100/hour?

Did it occur to you that by denying and rationalizing Russia's problems, you are doing exactly what an enemy of Russia would want done, precluding reform, just as in Soviet times?

pedro martinez says:

Unfortunately, while incomes have risen exponentially in Russia, they are pretty much stagnant in the U.S. So, I highly doubt that the U.S. will be able to match Russia's income growth in the years to come.

LaR also writes that she's proud that the U.S. consumes so much oil when her own president is ashamed that the U.S. is "addicted to oil." A telling statistic is that at current production and consumption levels, the United States' oil reserves will not last another 8 years unless new deposits are found. What then?

LaR claims that American oil consumption is proof of the vibrant economy. But a good analogy could be Anna Nicole Smith. Anna Nicole was pretty young and wealthy (she was married to an elderly gentleman who happened to be a billionaire). But she kept on eating and eating; and she became depressed so she also started taking pills. And Anna Nicole died.

Is the United States Anna Nicole Smith? That is the question.

Western Man says:

Hello,

Does La Russophobe support Boris Berezovsky?

He is the most active anti-Putin activist in real life and you are the most anti-Putin blogger on the internet.

La Russophobe says:

Western Man:

Define "support."

Pedro:

Liar. I never said I was proud. I said Russia should be ashamed and the difference between the two economies is enormous. Or maybe you think Russia is restraining its oil consumption intentionally?

Better Anna Nicole than Alla Pugachova, dude. Way, way better. You really are SO boring. Just repeating the things the USSR said about how America was doomed and would be buried.

But who got buried, chump?

beinghad says:

Wow...4$ an hour? Russians are FAT!!! My Tatyana is pulling around $1 an hour right now and we pay more for food than Poland! And me? I get to play specialist and can negotiate for almost $2 an hour, though there is an absolutle limit as to what the state organization can command for my services. But hey, we do it for the community right? But I had no idea they were so rich. How much is that? $640 a month? I'd be a king. Our doctors don't make that much over the table.
Brilliant work Kim.

La Russophobe says:

BEING HAD:

Thanks! It's an interesting paradox you mention, to be sure. By Western standards Russians are impoverished, but by Russian standards Belarussians and Ukrainians are impoverished. The USSR ended, and Russia ended up much better off than any of the other members. Coincidence? Perhaps not. A cynic might suggest that the USSR was Russia, a malignant empire sucking the blood out of a bunch of colonies that it then tossed in the ashcan when things got ugly. And perhaps Russia is just waiting until they bleed white and drop, whereupon it will gather them up and tote them back to the gulag.

beinghad says:

Stop badgering me with the truth. They have a better song than we do though. And I still say that the Brat movies were good. You're just biased.

La Russophobe says:

And I still say you've been in country too long and your standards are getting warped ;)

Interesting, I've never even heard the Belorussian national anthem. But how can it be worse than the music of the USSR? I guess maybe if Lukashenko is the only one who is allowed to sing it . . .

beinghad says:

Here you go:

http://en.wikipedia.org/wiki/My_Belarusy

I honestly don't know how inspiring it is myself, but this is what we listen to when the TV goes off at night. And about being in country too long, I am starting to think you might be right. The anti-Semitic remark last week seems to have put me right off my potatoes and cabbage.

Vash says:

I just have one point to make on this article. If the US gov't was to give each working citizen a free hours worth of wages per day for a year, consumer spending would surge, and there will be a very noticable impact on the economy as whole. After all tax cuts/increases often deal with much less money than that, and they have a very noticable effect.
Not that russia isnt going down the toilet, just that the effect should not be discounted.

Russian says:

La Russophobe is russophobic to the level of obsession. I have been watching her for a few months and see the same mantra: Russians make $2,50 or whatever per hour, Russia will colapse like the USSR did, Russian economy is dteriorating...

Guys, if you want to know about Russia, learn from some other source.

Joke:

Q: Why La Russophobe writes her articles under the titles "Annals..."
A: She thinks she is writing for HYSTORY!

Q: If this is not so, what is the right title?
A: The right is: "Anals..."

Q: Why so?
A: Because she is such an ass-et

Another Russian says:

Will US fall apart within a decade?

Experts claim: Definitely so!

The problems are staggeringly accumulating:

The subprime problem is just a page in the gigantic book of cross-indebtness, and 5 million americans will lose their homes within next couple of years.

The pretty-much worthless dollar is getting actively dumped by Russian population, Chinese bankers, Iranians, Venezuelans, just about any Important Resource Economy in this world. As opposed to the Unimportant trinket-designers and office-rats in Europe and US, with their GDPs grossly overinflated by PERCEIVED valuations of their so-called "knowledge/service" economies.
Let's see how they feel about getting cut away from the resource cake, and what their overvalued gadgets and patents will do without access to Energy!

The immigrant influx is mixing up the allegiances in the South-North axis of US, add the mounting problem of Police State tendencies, the severe dumbing-down of the young generation, the 200 millions of weapons floating around US, and the recipe is ripe for DISASTER. Can you imagine the blood-rivers if all these weapons start talking across neighbor's grass lawns?
All it wold take is a temporary weakening of the US repression state.
Then the federation will start unravelling even faster than USSR did, everybody pulling the bedcover on themselves.

After all, american "patriotism" is today more about bumper stickers than real allegiance.

George Steed says:

Interesting! Housing is part of the basic infrastructure. The housing in question is real. Its owners may change but it is there. Americans are upgrading and buying that housing. Dispossessed owners will simply relocate to lower priced housing. I would like to know what the effect of the early death of Russian men actually does to their economy. Many 'Western' nations are managed by over 60 year old men. They are the ones with experience.

Guki says:

Did this guy ever heard of credit ??

Envious says:

I sense a little envy bu the West. Russia seems to have all the Aces and the US all the debt..

It seems alot o f Russia citizens are happy with Putin. The people that have problems are the criminals outside Russia who pillaged her under that drunk..

Well folks no more pillaging under putin,,,the gravy train had to stop..

No cheap oil..I see downsizing no more the big SUV...

By the way how the Russians run their home is none of your business.
hahahaha

Envious says:

furthermore.....

Have you been to Moscow lately? It sure don't look like a place going broke anytime... I suggest travel there and report back, this is your assignment.

There is more Mercs and BM's in Moscow than London.... Soon there will be a thriving middle class... As oppose to the US the middle class is being screwed.

Sooner or later the credits will stop and the empire will crumble...the worrying is they will bring the whole world down with them...

Prime example Iraq and soon Iran..

As if the two states were any threat to the US...

you're so envious says:

One more thing...

You should reveal your sponsors...

So people can know the source of this this crap..

Man this website is a joke...

Vova says:

Arguable because unpredictable, but I won't call the Malignant Little Troll (or bloodsucking dwarf) a dictator. This would be a compliment

wow gold says:

publius