The Russian economy is just beginning to get out of quarantine restrictions, but it is already clear that oil and gas will be one of the most affected sectors from the epidemic. Moreover, Russian energy companies are likely to have a harder time than many of their competitors from other countries. This could jeopardize Russia’s foreign policy ambitions, which will have to focus on resolving domestic economic problems. It is also difficult for Russia to play a leading role in the US energy triple – Saudi Arabia – Russia.
The Russian economic model was built, especially after 2014, on import substitution, reliance on its own financial resources, and limiting the growth of the debt burden of both the state and corporations. At the same time, the authorities tried to create an “independent” economic system – they developed the Eurasian Economic Union with the dominant role of Russia, increased the share of gold in the reserves of the Central Bank, and so on. All this was supposed to protect the economy from external shocks. But the internal raw materials sector remained the internal engine of this model, which received the strongest stimulus for development due to the fact that the world economy has been on the rise all this time.
Such a model could not ensure high rates of economic growth but managed to maintain stability and accumulate reserves both for the budget and for the commodity companies themselves. The Russian economy enjoyed the benefits of global growth but was never able to learn how to transform them into meaningful economic results. Despite all attempts at modernization, the dependence of the Russian economy on the resource sectors has not declined in recent years. This led to the fact that neither the company nor the authorities were unprepared for a sharp change in the situation in the global economy due to the coronavirus.
The epidemic hit the largest industry in the Russian commodity sector – the oil industry. After all, oil is, first and foremost, satisfying the demand for mobility, both personal and for the movement of goods between countries and continents. The more globalized and rich the world becomes, the more oil is needed. For a long time, Russia, with the predominant role of the oil sector, has received enormous benefits from the globalization process, although it formally opposed the “dominance of Western values.”
A coronavirus pandemic could lead to global mobility coming off its long-term upward trajectory and moving into a new equilibrium. The problem is not so much the current collapse in prices, but rather fundamental shifts in demand. If consumers change their behavior for a long time even after the quarantine measures are lifted, and companies prefer to depend less on foreign deliveries that have become less reliable, then the market recovery will take a long time.
This means that years will pass before oil demand returns to pre-crisis levels. In 2020, global oil demand…
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