LEXO PA REKLAMA!

SHKARKO APP

Only a steady decline in oil prices will topple Vladimir Putin's regime

2023-04-23 09:21:00, Blog Kirill Rogov
Only a steady decline in oil prices will topple Vladimir Putin's regime
Illustrative photo

President Vladimir Putin has boasted about the strength of the Russian economy in the face of Western sanctions, citing estimates by international financial institutions that show Russia's GDP will decline modestly in 2022. But the Russian leader's behavior is not surprising, and he is not alone in this aspect.

It is a widely held view that the sanctions imposed on his regime have had little impact on the economy. A recent summary on the state of the Russian economy by the Re: Russia Project, a network of experts, challenges this thesis.

The report, prepared by a group of economists including former senior figures from Russia's finance ministry and central bank, a professor at the University of California, and myself, finds that the sanctions have actually had a very large negative effect.

They have resulted in a capital flight from Russia to the extent of 12 percent of its GDP. Under normal circumstances, this would hasten the coming of an economic catastrophe. But there is a powerful force mitigating the effect of sanctions: high energy prices.

Increased revenue from higher energy sales and reduced imports (due to sanctions) have resulted in a trade surplus of around 18 percent of GDP.

This surplus and the influx of petrodollars have helped Russia avoid economic collapse. But a hidden crisis is not the same as a strong economy. We call this situation "worse than a crisis" because the high income from energy exports acts as an anesthetic, which does not allow the economy to feel the damage caused by the sanctions and respond in an appropriate way.

Currently, in the global oil market, supply exceeds demand. But according to the forecast of the International Energy Agency in March, demand will increase significantly by the end of this year; and this will raise prices again.

Even taking into account a significant discount in the price of Russian crude oil, partly as a result of a price cap imposed by the G7, oil will provide Putin with sufficient funds to continue his war and maintain his regime. his repressive. Western efforts to limit Russian oil's access to global markets are likely to have little effect.

It is time to admit that high oil prices are the main factor in Putin's aggression outside and inside Russia. And it is logical to put the problem in a wider perspective. In the 1990s, the average price of a barrel of oil on international exchanges was $27 (at the 2010 exchange rate).

In the 2000s it was $54, and in the last 12 years it has been more than $70 (currently it is around $80). Russia has earned an average of $250 billion a year from oil and gas sales over the past 15 years.

The considerable size of this profit has enabled Putin to buy the loyalty of the population and create clientelistic networks within the elites. And this strengthened his and others' authoritarianism.

During the 1990s, many former authoritarian countries sought rapprochement with the West and tried to adapt to the Western market and democracy because they were interested in expanding trade and investment with developed countries. But the era of high resource prices has made such strategies much less attractive.

Domestic investment became less necessary because it was successfully replaced by the flow of export earnings. And the expansion of domestic consumer markets in authoritarian countries has lured foreign companies to invest and trade with them, turning a blind eye to corruption and human rights abuses.

I am convinced that if energy prices were much lower, the war in Ukraine would not have happened. The huge trade revenues not only consolidated authoritarianism and the Russian elites who benefited from their distribution, but also gave the Putin regime and its subordinates a general sense of omnipotence and invincibility, fostering what we might call “ petro-nationalism".

The same benefits also weakened the influence capabilities of Western countries, as access to their markets and investment became less and less important to Russia's economic well-being. In this we can find answers to two key questions: When will this war end? When will we see a normalization of the political regime in Russia?

The answer is when oil and gas revenues drop significantly. But it is likely that it will take more than a year of falling prices (such years have happened three times in the last 20). It would take 3, 4 or maybe 5 years to cause a sharp drop in living standards and a lack of money in the economy, which would force ordinary Russians and elites to conclude that the regime is over and to look for political and economic alternatives.

Although it would probably take several years of financial "starvation" to bring about such a turn of events, the war in Ukraine and sanctions have already significantly increased the regime's vulnerability to falling energy prices. Moscow must continue to make high military expenditures, but also high social expenditures to curb popular discontent. And at the same time it has to face the consequences of massive capital outflows abroad.

Moscow must also ensure import substitution in critical sectors, and build new infrastructure to expand trade flows to the east and south. Should energy prices experience a sustained decline, Putin's problematic war in Ukraine could turn into a self-defeating war.

Conversely, if oil prices remain high, the West will be forced to produce weapons for Ukraine at the same rate that oil profits allow Putin to produce them in Russia. And even if Ukraine manages to mount a successful military counteroffensive in the coming months, forcing the Russian leader to seek some form of ceasefire, his regime will most likely survive, with the threat of renewed war at a later stage.

Only a significant and sustained drop in hydrocarbon prices can change the situation. The only question is whether by then Russia will be too dependent on China both economically and politically to escape the authoritarian camp.

Note: Kirill Rogov, Russian political scientist, journalist and writer. He is a member of the Institute for Humanities in Vienna and the founder of "Re: Russia", a policy network./ Adapted from CNA.al

Lajmet e fundit nga