Most of the coverage of lower oil prices in world markets focus on the choices of the Saudis and OPEC not to cut production or on the effect that lower oil prices will have in the USA. As usual, the mainstream media for the most part ignores one of the biggest pieces of the lower oil price puzzle: Russia.
I a little noted bit of news today, the Russian government forecast that it's economy would shrink in 2015. The forecast is for a recession that will leave 2015 GDP down by 0.8%. This prediction is based upon a world oil price of $80 per barrel and the continuation of the mild sanctions that remain in place as a result of the Russian invasion of Ukraine. The Russian government also forecasts that its currency will decline compared to the dollar and the euro and that the domestic effect will be to increase inflation in Russia to roughly 7.5% next year.
This is an unhappy forecast from the Russians. Indeed, one wonders just how accurate it is. Russia is frequently accused of releasing statistics that make things look better than they actually are. If that is the case here, then 2015 could be a year of serious recession in Russia. But consider this: the Russians also forecast that if the price of oil stays in the low $60's per barrel, the GDP in Russia will contract by about 4% in 2015.
The lower oil prices give the USA a major weapon to use against the Russians in an effort to convince Moscow to end its adventures in eastern Ukraine. (I will not even mention Crimea, since this seems to be a done deal.) At the moment, despite the so called cease fire, there remain many thousands of Russian troops in the eastern sections of the country and fighting goes on every day between Ukrainian government troops and the "separatists" who are really Russian troops wearing other uniforms. If America were to actually work in a coherent and sensible way to impose further sanctions on the Russians to remain in place until the fighting in Ukraine actually ends with a full Russian withdrawal, the recession in Russia could be made much, much worse. When fighting first broke out in Ukraine, the world price of oil was nearly 50% higher than it is now. That meant a major source of revenue for Moscow, more than enough to pay for the adventures of the military. Should there be a serious recession, however, combined with sanctions that prevent Russia from borrowing in markets in New York, London, Germany or Tokyo, there will be major problems for the Russians in continuing to pay for their armed forces.
Of course, moving ahead with further sanctions would require the Obama administration to focus on the problem and to realize that just talking will not be enough to change Russian behavior. Most likely, this will not happen. Indeed, if Russia really does get hit by recession, the Obama administration would be more likely to seek to give aid to the Russians than to use the situation to stop Russian military adventures.
I a little noted bit of news today, the Russian government forecast that it's economy would shrink in 2015. The forecast is for a recession that will leave 2015 GDP down by 0.8%. This prediction is based upon a world oil price of $80 per barrel and the continuation of the mild sanctions that remain in place as a result of the Russian invasion of Ukraine. The Russian government also forecasts that its currency will decline compared to the dollar and the euro and that the domestic effect will be to increase inflation in Russia to roughly 7.5% next year.
This is an unhappy forecast from the Russians. Indeed, one wonders just how accurate it is. Russia is frequently accused of releasing statistics that make things look better than they actually are. If that is the case here, then 2015 could be a year of serious recession in Russia. But consider this: the Russians also forecast that if the price of oil stays in the low $60's per barrel, the GDP in Russia will contract by about 4% in 2015.
The lower oil prices give the USA a major weapon to use against the Russians in an effort to convince Moscow to end its adventures in eastern Ukraine. (I will not even mention Crimea, since this seems to be a done deal.) At the moment, despite the so called cease fire, there remain many thousands of Russian troops in the eastern sections of the country and fighting goes on every day between Ukrainian government troops and the "separatists" who are really Russian troops wearing other uniforms. If America were to actually work in a coherent and sensible way to impose further sanctions on the Russians to remain in place until the fighting in Ukraine actually ends with a full Russian withdrawal, the recession in Russia could be made much, much worse. When fighting first broke out in Ukraine, the world price of oil was nearly 50% higher than it is now. That meant a major source of revenue for Moscow, more than enough to pay for the adventures of the military. Should there be a serious recession, however, combined with sanctions that prevent Russia from borrowing in markets in New York, London, Germany or Tokyo, there will be major problems for the Russians in continuing to pay for their armed forces.
Of course, moving ahead with further sanctions would require the Obama administration to focus on the problem and to realize that just talking will not be enough to change Russian behavior. Most likely, this will not happen. Indeed, if Russia really does get hit by recession, the Obama administration would be more likely to seek to give aid to the Russians than to use the situation to stop Russian military adventures.
1 comment:
Jeff write something on Jane Fonda, Traitor who Obama wants to name as one of the greatest women of the century. Note: Barbra Walters cuts her apart
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