Some Russian and Western political scientists say that Russia is dependent on hydrocarbon exports. Everything is very simple. After all, Russia is a large global gasoline pump. The term "oil needle" implies a dependence on income derived from the export of "black gold". In this situation, the country's economy develops only when oil product prices are stable. Immediately with the fall in the cost of a barrel in such a state, an economic collapse begins. In this article we will find out the answer to the main question: "Does Russia's oil needle threaten?" Debunking the myths of oil, the ruble and Russia. And also you will find out how much our country is dependent on hydrocarbon exports.
Russia's dependence on mineral exports
Revenues from “black gold” and light hydrocarbons account for a significant share of profits from international trade. Indeed, if you look at the share that gas and oil exports from Russia take, the value will be quite large. Half of Russia's foreign trade revenue comes from hydrocarbons. However, mining accounts for only 21% of the country's GDP. The key minerals in these statistics are allocated 16%.
The share of oil export revenues in Russia's GDP
Russia's GDP in 2013 amounted to $ 2113 billion. Oil export from Russia in 2013 brought the country 173 billion, and the state economy earned about $ 67 billion on gas sales. It turns out that income from “black gold” amounted to 8% of GDP, and the country earned 3% of its gross domestic product on volatile hydrocarbons. With each subsequent year, there is statistics of an active reduction in the share of income from mining in the country's GDP.
Statistics show that the resource curse of Russia does not threaten. The Russian Federation is an active player in the global oil products market because of its size and large hydrocarbon reserves. Because of this, the country gets the opportunity to influence the geopolitical situation. Nevertheless, unlike many other world oil exporters, the Russian economy is much less dependent on black gold and its prices.
Per capita income from hydrocarbon exports in Russia
In Russia, there are quite interesting statistics. It is worth looking carefully at per capita oil export earnings. This indicator in Russia is 10 times less than in Norway, which is also a major European exporter of hydrocarbons. However, even in this country, the share of export earnings in total GDP is negligible. Norway does not sit on an oil needle, although per citizen it turns out more. In this state, the population does not receive income from the export of minerals, since all funds are allocated to the fund for future generations.
Countries such as Saudi Arabia or the United Arab Emirates, for which the term “oil needle” can be used, are characterized by much higher per capita income from exports. Their residents are so dependent on fossil fuels so much that in the event of a fall in black gold prices, they will face a significant decrease in income. On the other hand, since the share of hydrocarbon profits in the country's GDP is not significant, Russia is not able to provide such powerful oil social support for its citizens as some Arab countries do.
Considering the fact that the entire world economy is pegged to the dollar, as well as energy prices, immediately after the depreciation of the American currency, the income of the inhabitants of Arab countries exporters of oil will significantly decrease. A Norwegian fund with savings for the future will also depreciate. Russia will not suffer significant economic losses from falling oil prices, since our country only receives a certain benefit from the export of hydrocarbons, but is not dependent on minerals.
Part of resource rent in the total GDP of the Russian Federation
In 2015, Forbes reporters finally admitted that Senator John McCain, who is an active supporter of the war with the Russian Federation, was wrong, calling it a global gas station. The publication indicates that in the Russian Federation there is at least a service sector and manufacturing industry.
The author of the article, Mark Adomanis, gives an interesting diagram as an example, which shows the share of resource rents in the GDP of different countries of the world. In Russia, this indicator is at about 18%, which puts the country in 20th place in the ranking.
This indicator is very low compared to countries that really depend on the export of fossil fuels like Congo, Saudi Arabia or Qatar, where the share of resource rent is at the level of 35-60%. It is these states that need to get off the oil needle.
If we remove the export earnings of such products for Russia, its GDP will still be at a fairly high level, and the country will remain a significant competitor for other world leaders. Indeed, only 24% falls on the extraction of minerals in the country's industry. The remainder goes to infrastructure facilities (such as power plants) and processing plants.
Myth number 1. The price of oil greatly affects the ruble
There is an opinion that the ruble exchange rate is strongly influenced by oil prices. If you look at this question objectively, then a certain dependence is indeed observed. However, many factors affect the exchange rate, which is why you should not overestimate the importance of prices for the domestic economy.
As an example, it is worth taking a look at Libya or other countries on the oil needle, where the share of income from export of energy resources per capita is very significant. The Libyan currency in the fall in oil prices was supposed to fall much more than the ruble. Nevertheless, the economy of this country has shown stability. This indicates that fluctuations in the price of black gold do not affect the exchange rate of the national currency too much.
The Russian ruble suffers from regular speculative attacks by Western politicians and business representatives. The course is jumping due to the foreign policy situation, but not because of the influence of oil prices. The cost of a barrel is not the main reason for the fall of the ruble.
Myth number 2. If the price per barrel of oil falls, the Russian economy expects a collapse
The above information shows that oil prices have a certain impact on the formation of the state budget. Nevertheless, the dependence is not so significant, and the government is taking active measures to further reduce the impact of the situation on the international market on the economy. Modern refining enterprises are being built, which in the future will bring state budget revenues from the export of finished petroleum products, rather than raw materials, the prices of which are rather unstable. Such measures will help the country to make the income of the economy more decentralized. Oil export from Russia is much less profitable than the sale of finished gasoline to other countries. On the other hand, pumping gas and “black gold” from the Russian Federation puts consumers in a certain dependence of the state, which makes it an active geopolitical player and allows it to influence world politics.
Even if the income from oil exports completely disappears, the budget will lose only the superprofit that is spent on investments, modernization of the country and large infrastructure projects.
In such a situation, temporary freezing of large-scale works is possible, but stable payment of pensions, salaries and benefits will remain. The oil needle does not threaten Russia because of the large gold and foreign exchange reserves. Even if energy prices fall sharply, after which they will stay at this level for a long time, the budget deficit will be easily compensated by the world's largest gold reserves.
State budget revenues from oil and gas go to the development of the country, but the economy will be stable. Russia will be able to fully provide for itself, even in the event of a complete cessation of profit from hydrocarbons.
When the price of oil falls, the dollar rises against the domestic currency. The state budget of the country as a result does not lose anything in ruble terms.
Myth No. 3. In the near future, hydrocarbon reserves will be depleted and the country will go bankrupt.
At the moment, regular accounting of mineral resources is being carried out, as well as a calculation of the time during which it will be possible to maintain the current volume of mineral extraction and ensure stable gas exports from Russia abroad. Experts say that the declared residues will be enough for the country to maintain production rates for 30 years. New mineral deposits are regularly discovered in the vast territory of the country, which significantly increases Russia's long-term potential as a player in the energy market. The oil needle of the USSR and the Russian Federation today is that the country will have to fully provide itself with hydrocarbons in the future. When the declared sources are empty, there will be a need for the import of petroleum products. Nevertheless, the government is investing heavily in the study of domestic mineral deposits, which will allow in the near future to begin the development of new deposits.
For example, in 2014, oil deposits were discovered in the Astrakhan region. The source of fossils is located on land, which simplifies its development. High quality raw materials will provide the ability to process into expensive petroleum products.
In the same 2014, the Russian Federation began to extract minerals in the Arctic at the world's first polar oil platform. The continental shelf of Russia is considered one of the largest in the world. In the Arctic alone, there are more than 106 billion tons of gas and oil products.
Even in a situation where hydrocarbons that are cheap to mine run out, coal reserves will last for many more decades. Statistics also show that gas in the country will not end soon. Russia will be able to fully satisfy its own energy needs through the construction of power plants on numerous Siberian rivers, which have great potential in terms of building hydroelectric power plants.
It is also worth mentioning the domestic nuclear energy program. The government is investing billions of rubles in the construction of modern nuclear power plants, the capabilities of which are enough not only to meet the energy needs of the inhabitants of Russia, but also for export. Fuel for blocks of nuclear power plants will last for hundreds of years. Russia has every prospect of remaining a world exporter of energy resources and entering the ranks of superpowers even in the event of the end of the oil era.
Myth No. 4. The Russian Federation earns only by selling raw materials without developing its own industry.
The oil needle of Russia, according to some experts, does not depend on the economy depending on the export of minerals, but on the fact that the country sells only raw materials abroad. Such a statement is erroneous.
Indeed, Russia sells crude oil all over the world, giving part of its potential revenue to foreign refineries. However, such cooperation is also very beneficial for the Russian economy, because it allows you to get high returns for investment in the short term.
If earlier the country exported mainly crude oil, in 2003 the government began actively modernizing the domestic refining sector. Gradually, the share of crude product in the total export of hydrocarbons is reduced. Russian manufacturers are actively entering the world market, which fills the budget with even greater profits. Since 2003, the volume of production of finished petroleum products has increased many times.
Myth number 5. Under the reign of Vladimir Putin, the dependence of the state budget of the Russian Federation on exports has increased
Some near-by domestic and foreign experts “scold” Vladimir Putin for driving Russia into oil dependence. They prove this by the fact that in 1999 the share of hydrocarbons in exports amounted to only 18%, in already by 2011 it amounted to 54%.
The charges have no economic justification, since 2 important facts are not taken into account:
- In 1999, many oil companies of the oligarchs simply did not pay taxes. Money was sent immediately to accounts opened with foreign banks, and the state budget revenues from such exports were zero. In 2018, most oil companies operate transparently, and profits from oil and gas exports replenish the state budget.
- In 1998, the cost of a barrel was 17 USD. In 2013, a maximum price of 87 USD was observed. Such a leap ensured a significant increase in budget revenues from the development of oil wells and gas production.
- The federal budget is far from the only one in Russia. There are many local estimates of the constituent entities of the Russian Federation, which is why the real share of hydrocarbon revenues in the country's financial system is even lower.
In statistics, it is also worth considering the main point, as the total size of the state budget. Over the past 12 years, the country's income has increased 14 times. At this time, profits from hydrocarbon production grew 40 times. Revenues from other sectors of the economy grew 7.5 times.
Even if one imagines that suddenly at one moment the country will be completely without oil and gas revenues, then budget revenues from other sectors will remain, income will be 6 times higher than in 1999. Given the inflation of the dollar, the country's income will be many times higher than that time. Russia's oil needle does not threaten, both in the short and long term development. Since it is real facts that indicate that the country's dependence on minerals has decreased.
