Facing Declining Oil Revenues, Kremlin Plans to Maintain Itself by Taking More Money from the Population, Shelin Says

Paul Goble

            Staunton, October 4 – The Putin regime, which was born at the time of the oil dollar boom “is preparing for the end” of that source of income, Sergey Shelin says; but “it wants to remain exactly the same as it is now,” something that requires that it extract still more money from the population. 

            The Rosbalt commentator says that two new reports, one by the finance ministry (iz.ru/928394/dmitrii-grinkevich/shok-ukhodi-minfin-rasschital-uron-ot-padeniia-nefti-do-10-za-barrel) and a second by the Central Bank (cbr.ru/content/document/file/79958/on_2020%20(2021-2022).pdf), show the Kremlin is focusing on how to cope (rosbalt.ru/blogs/2019/10/04/1806122.html).

            The finance ministry report projects Russia’s income levels if oil falls to 40, 35 or even 10 US dollars a barrel, suggesting that those in power are wondering how they will maintain themselves “and partially” the population if such declines come to pass. The second suggests that an oil price of 20 to 30 US dollars is a more likely outcome and discusses the consequences.

            That would represent a halving of the price by next year and make the real price, when corrected for inflation, “lower than at any point in the 21^st century,” Shelin says.  Inflation in Russia would rise to eight percent, the government could not maintain the ruble exchange rate, and thus there would be devaluation, although how much the report avoids saying.

            According to this scenario, the analyst continues, Imports would fall from 249 billion US dollars this year to 177 billion next; and, again, adjusting them for inflation, that would take the country back to where it was in 2006 “when imports in current prices were 138 billion US dollars. At the same time, hard currency reserves would fall seven percent.

            The Central Bank report projects in this scenario that the real incomes of citizens would decline only two percent, but that figure reflects a certain sleight of hand because it factors in the use of savings and new debt to prevent a larger decline as “in difficult times, consumption declines more slowly than real incomes” for those reasons.

            A more honest figure, Shelin suggests, would be a decline twice as large, to four percent next year; but even that understates how much Russians will suffer because of a new upsurge of inflation, the devaluation of the ruble, and the sharp decline in imports.

            Such numbers might seem extremely alarming, Shelin says; but there is a good reason why for the Central Bank and the Kremlin, they may be less alarming than they are to ordinary Russians or outside observers. “Several years ago, oil prices declined by half and the country held out.” Its leaders are confident they can do the same again.

            What they assume is that the regime can continue to extract enough resources from the population so as to maintain the incomes of its members and use the regime’s coercive resources to keep the increasingly impoverished people in line.