By NEIL MacFARQUHAR: A version of this article appears in print on January 23, 2016, on page A1 of the New York edition
The global collapse in oil prices is reordering economic relations around the world, but the change is particularly daunting for Russia, which relies on energy exports for 50 percent of its federal budget.
In December, President Vladimir V. Putin told the nation that the worst of the recession — the economy shrank 3.9 percent and inflation hit 12.9 percent in 2015 — was over and that modest growth would return in 2016. He has been pushing the oil collapse as an “opportunity” that will wean Russia off energy imports and diversify the economy.
Then in January oil fell below $30 per barrel, with no bottom in sight, and the ruble hit a record low of nearly 85 to the dollar before recovering slightly.
The last time oil prices dropped so low and stayed there, in the 1980s, the Soviet Union disintegrated. Steadily rising prices since 2000 have lifted Russia out of poverty and economic chaos, buoying the prosperity of many Russians with it. Mr. Putin was lucky enough to be president for much of that period, but he now faces an extended decline, with real incomes shrinking.
With the federal budget approved in December based on oil at $50 a barrel, Anton Siluanov, the finance minister, announced that the country faced a budget deficit of about $40 billion, and ministries were ordered to cut spending 10 percent. Budgets were similarly guillotined last year.
Russia pumped record amounts of oil last year, nearly 11 million barrels per day, but that pace will not save it in the current global glut. The main government strategy so far seems to be to cut spending and to rely on its reserves until oil prices improve.
“The Russian people got what they wanted, a czar ruling the country,” he said of Mr. Putin. “What we need is an effective manager, but what we got is the Olympics, soccer and war.”
Alexandra Odynova contributed reporting from Krasnodar, and Ivan Nechepurenko from Moscow.
See Also
Oil Prices: What’s Behind the Drop? Simple Economics
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