Thursday, February 19, 2004

Russia's Oil Dependence

An important thing to always keep in mind when thinking about Russia's economic recovery is just how dependent that country is on oil and gas revenue. Russia's improved economic circumstances over the past few years have had almost nothing to do with Vladimir Putin's merits as a leader, and everything to do with an upwards trend in oil prices.

MOSCOW, Feb. 17- Russia's economy is more deeply dependent on oil and gas than previously thought, with energy making up an estimated 25 percent of output instead of the 9 percent attributed to it in Russia's own accounts, the World Bank said on Wednesday in an economic report.

Russia's greater dependence on oil also meant that the country's extremely successful recovery is "much more vulnerable to fluctuations in international oil prices," Christof Ruehl, chief economist for the World Bank in Moscow, said at a news conference here.

Since the United States-led invasion of Iraq, oil prices have been climbing. Brent crude oil for March delivery rose to $35.88 a barrel on Wednesday, its highest level since Jan. 20.

Russia's economy grew 7.2 percent in 2003, and Mr. Ruehl said that roughly 3.2 percentage points of that growth came from oil revenues.

If there's one thing watchers of the oil market know, it is that what goes up will go down, sooner or later. When this does happen, it is likely to take the bloom of Putin's rose, and I wouldn't be surprised if he starts casting about for scapegoats on whom to lay the blame. Russia is far from being a stable country.