Although low oil prices are hurting Russia’s economy, it isn’t the only factor.
Russia is stuck in its first recession since 2009, and sanctions from the U.S. and E.U., brought on by Russia’s conflict with Ukraine, have limited the country’s access to investment and international trade.
Those sanctions are cutting off the country’s two biggest oil and gas producers, OAO Rosneft and OAO Novatek, from importing new technology.
Much like the U.S. and its shale drillers, Russia needs to invest in better technology to make oil and gas production more cost-efficient. But the current climate is not an investment-heavy one.
But low crude prices are only part of that climate; geopolitical problems with Ukraine, domestic institutional challenges, and currency exchange rate swings mean very little of Russia’s money is available to go towards improving drill efficiency.
The Russian ruble has dropped in value, limiting the amount of help the country’s government can offer; the problem is that Russia’s economy cannot recover without it.
About one quarter of the country’s GDP and one third of its exports rely on energy-related commodities according to the ratings company Moody’s in London, and previous attempts to reduce Russia’s reliance on such commodities have come up short.
Moody’s managing director Yves Lemay asserts that Russia will need “significant investment” to shift from oil and gas reliance.
The low oil market is expected to continue, and under the current conditions it seems that Russia’s economy will stay low with it.
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Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
