Russian power and dropping oil prices
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Oil traders looked OPEC right in the eye today, and just laughed. Crude fell another $0.93 in New York.
Down under $64 dollars even after the production cut OPEC announced Friday.
Obviously the cartel’s worried about the economic effect of tumbling prices.
But the collapse of crude could have political fallout, too.
Especially for a country that’s as dependent on oil as OPEC is Russia.
From the European Desk in London, Marketplace’s Stephen Beard reports.
Here’s one rather curious feature of the global financial crisis: on one level the Russian government seems to enjoy it.
Julian Cooper: There’s clearly some pleasure in Moscow or there has been until today that it’s the American economy that’s the cause of all the problems. And the American economy is suffering.
Professor Julian Cooper of Birmingham University says Prime Minister Putin and President Medvedev have shamelessly exploited the crisis.
Cooper: They rather cleverly have blamed all the problems of the Russian economy today on the outside world as if nothing at all is wrong with Russia, which is far from being the truth.
While foreign cash has been flooding into the safe haven of the U.S. dollar, it’s been pouring out of the rouble. Capital is fleeing Russia at the rate of $16 billion a week. Bill Browder ran a fund in Moscow for nearly 10 years and was booted out for criticizing the Kremlin. He say a key factor in this massive loss of international confidence is the falling price of oil.
Bill Browder: I think that the price of oil is basically all they’ve got going for them in Russia. They’ haven’t diversified the economy. So, if oil is one half of what it was six months ago, then they are one half as wealthy and one half as powerful as they were six months ago.
This could have big political repercussions. Many analysts see a direct link between the price of oil and Russia’s more bellicose behavior on the world stage. Ariel Cohen is with the Heritage Foundation in Washington. He says that if oil bounces back, Moscow may up the ante.
Ariel Cohen: If oil goes back to 100 (dollars a barrel) then Vladimir Putin has enough cash for new ships, ballistic missiles and other toys.
But if the global recession takes hold and oil sinks beneath $60 a barrel?
Cohen: Russia may review its foreign policy priorities.
But don’t expect Russia to be any less assertive in its dealings with the West. The sinking price of its principal asset is a problem. But Russia’s old adversary has quite a bit on its plate too, says Nick Redman of the Economist Intelligence Unit.
Nick Redman: The U.S. is pretty distracted right now. The Bush administration is basically a lame duck administration in Russian eyes. So, in that sense I wouldn’t expect to see the Russians caving in on anything, any time soon.
Redman says the Kremlin is sitting pretty on a couple of well stuffed cushions. Foreign currency reserves of more than half a trillion dollars. And a sovereign wealth fund of more than $200 billion.
Redman: Given that Russia has these absolutely enormous foreign currency reserves you wouldn’t think that the leadership is sweating quite yet.
However, it could be sweating soon. The capital flight continues despite an $80 billion intervention to prop up the rouble.
Ariel Cohen says however it copes with the crisis, Russia should not be ignored.
Cohen: You can never stop worrying about Russia. Russia too strong or too weak is always a challenge for the West.
What happens next in Russia, says Cohen, depends on the price of oil and that depends on the length of the global recession.
In London, this is Stephen Beard for Marketplace.
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