Dangerous acrobatics of the Kremlin

Resisting the emergence of mass protests, the Kremlin, unlike its European neighbors, is increasing government spending.

If the growth of expenditures slows down, the reserve of sustainability of power may not be enough. Russia is sinking deeper and deeper into energy dependence. To the Kremlin's delight, oil prices are holding high despite weak growth in the U.S. economy, declining output in 17 eurozone countries and slowing economic growth in China. On Friday, Brent crude traded at more than $117 a barrel, about three times the December 2008 price.
Last year, analysts were pointing to a "margin of safety" for the Russian budget of $100 per barrel. Currently, according to the Economist Intelligence Unit analysts, that figure is 120 dollars. Citibank estimated that the drop in the price of oil for every  10 dollars reduces the Russian government's revenues by  20 billion dollars.
Just as the growth of shale oil and gas production in the U.S. threatens Canadian energy exports, European shale gas and supplies from North Africa threaten Russian exports to Europe. Shale oil, regardless of where it is produced, will have a negative impact on world oil prices. The United States is becoming an energy superpower. This does not mean that the country will suddenly become an energy exporter. It means that its energy imports will decline, depriving Russia, OPEC, and Canada of export opportunities. The Kremlin must be terrified that their oil-dollar fountain will turn into a trickle as the revolutionary technology of shale oil and gas production sweeps the planet. Already, Gazprom is allowing some of Europe's largest consumers to renegotiate the terms of their long-term contracts. There is no doubt that Gazprom's best days in Europe are over.
In 2009, when Dmitry Medvedev was president, he called the country's dependence on energy resources an "uncivilized" phenomenon. Today, he might add, it is a socially dangerous phenomenon.

 

 

 

Based on foreign press for ForTrader.org