The Nation that has Proven Oil reserves of 79 billion barrels Representing 6% of The World total and 45% of non-OPEC Reserves needs to do Away from its over Dependence on The ‘Black Gold’ if it really wants to become a Viable Player on The Global Arena.
The Russian economy has finally returned from the brink of a collapse. After falling 11% on a year-ago basis in Q2 2009, Russia’s real GDP rebounded, growing 2.7% y-o-y in Q3 2010. While this is a step back from the 5.2% growth in Q2 2010, it was the third straight y-o-y increase for an economy that was struggling to come out of its worst recession since the fall of the Soviet Union in 1992. A major rebound in the trade surplus (at $9.6 billion in Q3 2010) on the back of rising oil prices (oil accounts for nearly 20% of Russia’s GDP, over 66% of its exports and 50% of its government revenues), following a dramatic 75% plunge in the surplus during H1 2008, has been a key driver in the recovery. Sounds impressive! But, a small walk down the memory lane and one can easily question the sustainability of this so-called remarkable rebound, once again led by the ‘Black Gold’.
For starters, during the commodity boom prior to the global slowdown, triple-digit oil prices (at $147 per barrel on July 4, 2008) were a boon for Russia. In fact, in July 2008, at the height of the oil boom, the total value of country’s oil exports was up 77% from the same period during 2007. Since the government receives 90% of all earnings of oil exports when the oil price exceeds $25 per barrel (for a field with oil depletion below 80%), the country’s coffers were brimming. But then, not to forget, it was this over-dependence on oil that has brought Russia’s economy nearly to the ground, not once but twice.
First in 1998, when the devastating Ruble Crisis hit its shores on August 17, 1998 (a massive decline in world commodity prices had triggered financial crisis across countries that were heavily dependent on the export of raw materials and Russia was among the worst hit). Second, more recently in 2008 (a part of the World Economic Crisis that started in 2008), when the price of Russia’s benchmark Urals crude fell 77% in the second half of 2008, which not only caused an 11% peak-to-tough decline in Russian GDP, but also saw the economy witnessing a capital exodus. What’s more? Net capital outflows from the country reached an alarming level of $130 billion & $50 billion in 2008 & 2009 respectively (this together amounts to about 13% of Russia’s GDP). Even Russian share markets nose-dived and a whopping $1 trillion had wiped off from them by 2008-end. All this led to a sharp fall in ruble’s (Russia’s currency) value (ruble’s value fell 35% against dollar between August 2008 & January 2009). In order to stem the ruble’s plunge, the policy-makers had to buy up rubles using country’s forex reserves. In fact, from July 2008-January 2009, Russia’s forex reserves fell by $210 billion (from $596 to $386 billion) thereby dragging the world’s largest country (by area) into a severe recession.
For starters, during the commodity boom prior to the global slowdown, triple-digit oil prices (at $147 per barrel on July 4, 2008) were a boon for Russia. In fact, in July 2008, at the height of the oil boom, the total value of country’s oil exports was up 77% from the same period during 2007. Since the government receives 90% of all earnings of oil exports when the oil price exceeds $25 per barrel (for a field with oil depletion below 80%), the country’s coffers were brimming. But then, not to forget, it was this over-dependence on oil that has brought Russia’s economy nearly to the ground, not once but twice.
First in 1998, when the devastating Ruble Crisis hit its shores on August 17, 1998 (a massive decline in world commodity prices had triggered financial crisis across countries that were heavily dependent on the export of raw materials and Russia was among the worst hit). Second, more recently in 2008 (a part of the World Economic Crisis that started in 2008), when the price of Russia’s benchmark Urals crude fell 77% in the second half of 2008, which not only caused an 11% peak-to-tough decline in Russian GDP, but also saw the economy witnessing a capital exodus. What’s more? Net capital outflows from the country reached an alarming level of $130 billion & $50 billion in 2008 & 2009 respectively (this together amounts to about 13% of Russia’s GDP). Even Russian share markets nose-dived and a whopping $1 trillion had wiped off from them by 2008-end. All this led to a sharp fall in ruble’s (Russia’s currency) value (ruble’s value fell 35% against dollar between August 2008 & January 2009). In order to stem the ruble’s plunge, the policy-makers had to buy up rubles using country’s forex reserves. In fact, from July 2008-January 2009, Russia’s forex reserves fell by $210 billion (from $596 to $386 billion) thereby dragging the world’s largest country (by area) into a severe recession.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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IIPM's Management Consulting Arm-Planman Consulting
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
