Saturday, October 27, 2012

Russia's Deadly Dependency on Oil & Gas Revenues

How dependent on oil & gas revenues is Russia's federal budget? Vladimir Putin recently claimed that his government is only 50% dependent on oil & gas revenues:
President Vladimir Putin said at the annual meeting of the Valdai Discussion Club.... “Fifty percent of our budget revenue comes from oil and gas sales. _Putin talks to Valdai Discussion Group
But Putin's claim is quite low in comparison with most estimates. In fact, even official numbers place Russia's oil & gas dependency at a higher level than Putin:
Russia’s federal budget is reliant on commodities revenues - according to official data, commodities contribute around 60 percent of the federal budget; in reality, that number is closer to 75–80 percent as much of the service sector depends on money from oil and gas. _Russia's Oil Luck or Curse
So, Putin claims a 50% dependency. Official data puts the number closer to 60%. And "in reality," the number may be as high as 80%. Or perhaps even more.

When discussing the impact of the North American shale revolution on the future of Russia, Russia Today puts the figure at 80%:
Should “a shale revolution” really take place, it’ll seriously reshape the world energy market, where traditional energy sources could be replaced by cheaper shale commodities. This will hit Russia’s budget hard, as oil and gas revenues provide for about 80% of the entire Russian budget. _Natural Gas Europe _ via
Regardless of its exact level of dependency on oil & gas revenues, Russia's government is extremely vulnerable to declines in international oil prices, to international competition for oil & gas sales, and to any threats to domestic oil & gas production and transport within Russia itself.

Russia's oil infrastructure, for example, is relatively old and degrading rapidly. When the Russian government finally makes a decision to divert oil & gas profits away from the federal budget and political cronies for necessary upgrades to production equipment, it may find itself competing internationally for access to limited quantities of state-of-the-art technology.

Russia is undergoing rapid change demographically. Its best young people are leaving:
Emigration jumped 22 percent in the spring of 2011, mainly fuelled by educated youth. Gudkov said that over the past decade, Russia has lost about a million and a half people from the middle class.

“These are the most educated, the most successful, the most enterprising people,” said Gudkov. “They did not leave the country because of insecurity or economic problems, but because of a lack of political possibilities. Those who have been successful in Russia understand that under current conditions, they may not be able to protect their assets or loved ones in the absence of political protection, especially judicial protection.” _Source
A nation's people are its most important infrastructure. And Russia's government is squandering its people through its corrupt and short-sighted diversion of Russia's oil & gas wealth into the bank accounts of the politically well-connected.

Of course, Russia is not unique among nations in that regard.

The pandemic of corrupt government has cursed nations from the US to the EU to Russia, China, Australia, and across the third world. That is not the question. The question is "at what level of corruption does a high quality of life become impossible for most citizens?" Because at that point, your best people are going to get out, if they can.



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