A Winter Of Discontent For Russia
OilPrice.com | Aug 26, 2015 12:25AM ET
Winters are the stuff of legend in Russia and – despite a fair bit of collapsed nearly 25 percent since the end of May, and 11 percent alone in August. For optimists and pessimists alike, speculation on the ruble’s future is an exercise in futility. To be sure – on its current path – it’s not a very fun activity either.
On a micro level, the ripple effects have hit hard. Real wages, or purchasing power, fell 4.8 percent in July and delinking pension hikes from inflation, a move that would condemn a growing number of the population to abject poverty should the economic trends continue.
More broadly, the recession is in full swing. Russia’s gross domestic product
Energy export revenues have obviously tanked, but longer-term sources of growth are also proving elusive in the current climate. Capital expenditures in industrial production and infrastructure are down and continue to fall. Conversely, capital flight may reach $90 billion by year’s end.
It’s quite apparent that a business-as-usual approach spells trouble for Russia; minus some budgetary magic, or a swift oil price turnaround, the reserve fund may Russia’s institutional trap – may finally outweigh the benefits of its existence.
Grumblings of discontent at the top have been quick to surface. President of the struggling Russian Railways Vladimir Yakunin is out – apparently of his own volition – and other CEOs, Rosneft’s Sechin and Gazprom’s Miller included, may see their tenures
Bailout legislation currently in the works promised that current and future supply projects, and foreign contracts, will not be threatened.
Toward this end, a push for technological and operational independence has been prioritized. Baker Hughes (NYSE:BHI) has working to provide import-substituting producers with the appropriate financial levers for success. Still, both cost- and time-intensive, this is a long-term contingency plan that few can count on.
For its part, foreign experience will continue to play a major role. Halliburton's (NYSE:HAL) Sperry Drilling, C.A.T. Oil AG (XETRA:O2C), and Schlumberger (NYSE:SLB) are just some of the companies taking advantage of the increased
Further, a draft bill seeks to open up large deposits of oil and gas for exploration – a tacit admission that the old, and oft-changing, mineral regime did little to spur greenfield development. However, interest in the blocks, previously off-limits to foreign producers, is hardly encouraging.
Maintaining output and market share amid low demand and low prices remains the goal du jour. And, to be sure, the oil and gas will keep flowing – there’s no other option. But, for the people at the top, and the people on the ground, it’s going to be a long winter.
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