Struggling Oil Prices Pose Challenges for Russia's Economy
Russia is currently grappling with economic difficulties due to the fall in oil prices and the ongoing sanctions by the West. The latest draft of Russia's 2015-2017 budget, which estimates the price of a barrel at $100, may need to be revised as oil prices have fallen 29 percent since June, according to Bloomberg News.
Oil and gas account for about half of Russia's government revenue. If oil prices remain at their current level, the Russian budget is expected to fall into deficit next year. The prognosis for Russia's budget deficit in 2016, assuming oil prices remain in the $80-$90 per barrel range, is generally expected to improve or be less severe compared to lower oil price scenarios. However, precise deficit projections for 2016 under this price range are not explicitly detailed in the available search results.
The weak ruble, which traded at 43 to $1 and 54 to the Euro on Friday, is limiting the purchasing power of Russian consumers. The value of the ruble has been declining every day in October. Economists believe that Russia's accumulated reserves and a floating ruble can cushion it against immediate threats from the falling oil prices.
However, the economic challenges in Russia may require a cut down on spending or a rise in taxes, which could further affect investment and GDP growth. The Russian inflation rate is running at 8.4 percent, according to Bloomberg. The economic pressure is straining Putin's relations with the Russian elite and business establishments, considered as his two pillars of political support.
Professor Sergei Guriev of Sciences Pro in Paris believes Russia can withstand lower oil prices for a while, but not for too long. The economic struggles in Russia are creating a vicious cycle. On Friday, the Russian central bank raised interest rates by 1.5 percent, the highest rate since March, in an attempt to stabilise the economy.
Slumping oil prices are posing a formidable threat to Russia's foreign policy. As a net importer of food and consumer goods, Russia may face overall price increases despite import substitution. This could lead to further economic instability and political repression, as the government may need to pacify the country suffering from low standards of living.
Economists are divided on the long-term impact of the current economic situation on Russia. Some believe that the country can weather the storm, while others predict a prolonged period of economic hardship. The economic struggles in Russia are a complex issue with far-reaching consequences, both domestically and internationally.
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