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Thursday, February 22, 2007

Without Oil, Russia has no Economy

The Moscow News reports that in Russia the price of oil, fixed abroad, determines national economic growth in a direct relationship. In other words, the country's economic growith is hostage to what foreigners are willing to pay for oil. Despite this, Russia crazily continues to attack foreigners at every opportunity, clearly a suicidal policy. Here the details from MN:

Russian Economy Ministry said at its website on Monday, Feb. 19, that Russia will cut its forecast for economic growth this year after lowering its estimate for crude prices. GDP will probably expand 6.05 percent this year, down from 6.2 percent previously forecast, the ministry said.

Russian leaders have warned that growth, which has been bolstered by oil and gas and helped the country pay back billions of dollars in debt, may slow as energy prices fall. President Vladimir Putin has urged the country’s largest companies to do more to lessen Russia’s reliance on raw materials exports, as crude oil prices dropped below $60 a barrel this year.

“The slowing economic growth is an objective reality and we will soon feel its effects,” Anton Struchenevsky, a senior economist at Moscow-based Troika Dialog investment bank, told Bloomberg. “The era of cheap money is over.”

Record global energy prices have been a boon to Russia, whose economy has expanded for the past nine years after it defaulted on domestic debt, causing the ruble and domestic banks to collapse.

Since then, the government’s Stabilization Fund, which holds windfall revenue from oil sales, increased to 2.7 trillion rubles ($99.9 billion) by the end of January. Record oil prices also helped boost Russia’s gold and foreign-currency reserves to $309.5 billion as of Feb. 9.

The Economy Ministry forecasted that oil prices will drop to $55 a barrel in 2007 from $61 a barrel. The government calculates its budget according to the price of Urals, Russia’s benchmark blend of crude.

Urals is currently trading at about $55 a barrel, a 7 percent discount to futures on the New York Mercantile Exchange. Oil prices will drop further to $53 a barrel in 2008, $52 a barrel in 2009 and $50 in 2010, the Economy Ministry said.

Falling oil prices will cut Russia’s trade surplus this year, said Struchenevsky. Still, lower energy prices will also cap inflation and the quality of economic growth will probably improve, he said.

Oil, gas and petrochemicals exports accounted for 68 percent of total exports in 2006, according to Russia’s Federal Customs Service. The surplus ballooned to $164.4 billion from $142.8 billion a year earlier, boosted by an average increase in oil prices of 25 percent, the customs service said.

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