Russia may run out of money by mid-2017 because of low oil prices, essentially bankrupting the country.
Russia’s reserve funds will be exhausted entirely within the next seven months unless the price of oil rises. Russia’s petro-economy isn’t diversified enough to make up the budget shortfall through other means.
“Since mid-2014, Russia has seen an ongoing recession, with wages adjusted for inflation dropping nearly 10 percent, and inflation itself as high as 15 percent,” Jules Suzdaltsev, an economist at Seeker Daily, said in a video.”Oil is the leading cause of Russia’s current economic crisis.”
Russia heavily relies on oil to buoy its economy and fund the government. In 2013, crude oil exports accounted for 68 percent of total export revenues, and low prices mean less revenue to fund the country’s domestic and foreign policy agenda.
Russia’s economy will continue shrinking even if oil prices recover to $80 per barrel, according to the Energy Research Institute of the Russian Academy of Sciences. The current price of a barrel of oil is hovering around $50. The International Monetary Fund predicts the Russian economy shrunk 3.4 percent last year, the most of any major emerging market.
The Russian central bank previously predicted that if oil prices remain below $50 a barrel the economy could contract by up to 6 percent. In the first two quarters of 2015, Russian GDP shrunk by 1.6 and 2.0 percent respectively and 60 of Russia’s 83 regions are now facing a debt crisis. Sanctions and low oil prices have combined to be a “perfect economic storm,” according to the private intelligence firm Stratfor. Even the Russian government is worried, slashing its growth forecasts and predicting that the economy will fall into recession.
Low prices are likely making Russian foreign policy both desperate and even more aggressive.
Russia’s situation could become slightly better as it reached an agreement with the Organization of Petroleum Exporting Countries (OPEC). OPEC announced last week that it will cut production, causing the price of oil to rise, which mitigates Russian losses. However, three OPEC member nations are already defying the agreement.
Russian oil production was surpassed by the U.S. last year largely due to hydraulic fracturing, or “fracking.” America is now the world’s largest and fastest-growing producer of oil and natural gas. U.S. oil production in 2015 was 80 percent higher than it was in 2008.