Is Russia’s Economy Collapsing?
And there was more horrifying bad news that left no room for Russophile rationalization: Dictator Vladimir Putin announced a wave of Soviet-style price fixing. It’s been announced that Russia is facing double-digit consumer price inflation for 2007, and prices may be rising at double that rate on the small basket of foodstuffs and other items that are readily affordable to the mass population, which works for an average wage of less than $4 per hour. It’s quite shocking to think that G-8 member Russia needs to resort to the tactics of Zimbabwe strongman Robert Mugabe in order to stave off short-term panic, simply making price rises illegal — as if that was a way to solve inflation that the other G-8 members never thought of.
And Putin has gone further, implying he believes the price fixing moves won’t be enough to guarantee his party’s success in upcoming parliamentary elections. He’s blocking the arrival of Western monitors to oversee the fairness of the polls, and he’s banning outright the participation of key opponents. It’s an important election, since it’s the means by which Putin proposes to stay in power, taking the lion’s share of parliamentary seats and assuming the role of prime minister.
It almost makes it seem that Russian’s much ballyhooed oil resources are not all they’re cracked up to be. In fact, that’s precisely the case.
RIA Novosti reports that Russian Industry and Energy Minister Viktor Khristenko has predicted Russia’s oil output for 2007 will be 3.6 billion barrels. This is somewhat more than the U.S., at about 2.8 billion barrels, produces, but real issue in terms of U.S. supply is that the gigantic, dynamic U.S. economy consumes nearly 21 million barrels each day, whereas Russia consumes only about a relatively puny 2.5 million barrels per day – at ten times less, a pretty good reflection of the difference in GDP between the two countries, currently in a ratio of about 12:1.
Russia will consume about 0.9 billion barrels of oil in 2007, so it will have about 2.7 billion barrels available to sell to the world. If it sold all those barrels at the market price (it actually can’t do this), and if the market price were $100 per barrel (it hasn’t reached that level yet), then Russia would have a gross income of just over $200 billion from its spare oil. Let’s say it has only 10% production costs (given Russian corruption levels, that’s probably very conservative) — this would leave about $180 billion for the Kremlin to do as it likes with.
Let’s say the Kremlin wanted to divide up that money equally among the people of Russia, for them to better their lives with. Of course, it has no such intention, and will spend the vast majority of this money supporting instability in the Middle East to keep the price of oil high and building up Russia’s military so as to prop up the dictatorship. But let’s just say.
Russia has 140 million people. So if that $180 billion were divided equally among them, they would each get about $1,200. That would mean each Russian person would have an extra $3.50 per day — one hour’s average wages for a Russian — to spend on bettering his life. As the common man is concerned, roughly 20% of that figure would be eaten up by inflation, so the Russian would be left with about $2.80 each day to live it up with.
And remember, that $2.80 is the very best case scenario for the Russian. In actual fact, virtually none of this oil “wealth” will be passed on to him by his government, which will instead send some of it to terrorist groups like Hamas and Hezbollah as well as rogue nations like Syria and Iran so they can continue their nefarious activities aimed at destabilizing the Middle East, thus keeping the price of oil high, and use the rest to start a renewed arms race with the United States — an arms race which will bankrupt Russia just as the first one bankrupted the USSR — and to maintain the Kremlin’s oligarchs in the style to which they are accustomed (the same style enjoyed by the old Soviet politburo).
It hardly matters. That $2.80, after all, wouldn’t be enough to solve any of the life-threatening social ills that prevent the average Russian man from living to see his 60th year and cause the Russian population, despite record levels of immigration, to suffer a net loss of up to 1 million people each and every year. Yet, Russia’s entire economy hangs on the significance of this sum; without it, Russia is quite simply a third-world state with no conceivable argument for G-8 membership. Its capital markets, and undoubtedly its “president,” are only too well aware of this fact, it seems.