Despite promises to diversify, the country of Russia is more dependent on the price of oil today than it was when Putin first took power in 2000.
The Russian parliament’s recently approved 2016 budget is based on an oil price of $50 per barrel and Kremlin economists predict little to no economic growth for 2016. However, with the current price of Urals crude at $41 per barrel, Russia’s “base budget” is optimistic at best.
If the average price of oil during 2016 remains at $40, Russia’s GDP is predicted to decline by 1.5%. The Ministry of Finance has also considered “more risky” scenarios, such as a drop to $35 per barrel, which would mean an economic shrinkage of 2%-3% along with inflation and falling wages.
According to the current finance minister, Russia will face “a complicated year” if the average price dips to $30 per barrel. And in the words of a former finance minister, Russians would be wise to prepare for a biblical “seven lean years.”
In all scenarios excepting the hope of $50 per barrel, 2016 will mean a “second wave” of recession for Russia with falling pensions and wages, a diminishing ruble, and significant inflation. The president’s predictions for 2016 have changed from recovery to “reaching the bottom.”
During his annual, year-end press conference, Putin advised his country to prepare for “belt tightening.” And after discussing investment plans and preparations for the 2018 World Cup, the Russian president attempted to reassure his audience with the somewhat confusing statement: “The Russian economy has generally overcome the crisis, or at least the peak of the crisis, not the crisis itself.”
Putin will face opposition next year from the people who were once his core supporters – blue-collar workers who are hardest hit when the economy stagnates. Meanwhile, the Kremlin faces a nationwide strike as truckers protest a federal highway tax and the corruption it signifies. A full 70% of Moscow’s inhabitants favor the truckers against the government.
If we’ve learned anything from his past actions, Putin will most likely launch a foreign pre-election campaign, maybe in Ukraine, to distract Russia from its economic problems and incite Russian patriotism. But let’s not forget that the new Russian Duma will be made up of parties that are buoyed by electoral support and perhaps more willing to stand up to the almighty Putin.