Low oil prices devastate Russia’s economy---no remaining sources of revenue

Russia’s finance minister, Anton Siluanov, is confident that Russia, with its National Welfare Fund with an estimated value of $150 billion, at the beginning of the “oil war,” would allow Russia to weather the loss of revenue for a maximum of 4 years. In addition, Russia has some $551 billion in currency reserves. However, with the advent of COVID-19, and the subsequent meltdown of equity markets worldwide, the amount of wealth in Russia’s sovereign wealth fund is unknown. However, with Russia’s estimated GDP of $4.2 trillion in 2017, even by using its sovereign wealth fund reserves and foreign currency reserves in the oil war, which has been complicated by the worldwide slackening demand for oil due to COVID-19, it is doubtful that Russia will be able to forgo the revenue it depends on for the funding of its government expenditures.

With oil revenues making up 52% of the Russian budget (with the current cost of Urals oil $18.30 a barrel, down from a high of $52 a barrel), this would mean a much larger drain of wealth from Russia’s sovereign wealth fund. Accounts Chamber of Russia head Alexei Kudrin has said that Russia may need to ramp up spending with an additional 5% of its GDP, roughly $70 billion a year to combat the effects of COVID-19 in Russia. Presumably, this would come from Russia’s foreign currency reserves. In addition, especially with the meltdown of equity wealth worldwide, the amount of money available from the Russian sovereign wealth fund will be much less than planned for.

With the average Russia citizen already unhappy with the state of Russia’s economy, and with the economic costs associated with the dramatic drop in the profitability of its oil revenues, it is highly probable that Russia will experience significant civil unrest as the standard of living of the Russian people continues to decrease.