The economy of the world’s biggest energy exporter is heading for its deepest slump in more than 10 years due to the fallout from the coronavirus. However, an even bigger crisis may be just around the corner, Bloomberg reported.
Analysts at the Kremlin-funded Skolkovo Energy Center warned this month that the nation faces years of economic stagnation as demand for its carbon-heavy exports gradually drops. If Russia doesn’t adapt, budget receipts will “decline drastically” and growth may be limited to less than 0.8% a year for the next two decades, less than a third of what the Economy Ministry is targeting.
President Vladimir Putin has relied on high oil prices as a backstop for economic growth, and his own popularity ratings, for most of his two decades at Russia’s helm. Now forecasters expect that the coronavirus recession will accelerate the decline in global fossil fuel use, with some even predicting that the peak was in 2019, about 15 years earlier than the Kremlin was expecting, Bloomberg adds.
“Oil and gas are becoming just commodities, without the resource rents that were the main driver for the Russian economic miracle at the beginning of this century,” Tatiana Mitrova, director of the Skolkovo Energy Center, said by phone. The coronavirus crisis has likely made the think tank’s economic forecasts even bleaker, she said.
The Kremlin is showing no signs that it plans to move away from the current economic setup, under which almost half of budget revenues come from energy exports. Just this month, Rosneft Chief Executive Officer Igor Sechin boasted to Putin about progress made at an Arctic oil exploration project and Gazprom began design and survey work on a new pipeline to China.
Crude prices have collapsed about 45% since the start of the year as coronavirus lockdowns sap demand. Although the market has rebounded in recent weeks, the price of Russia’s export blend of Urals crude is still well below the $42 a barrel needed to balance the Russian budget.