Russia will have to consider rational resources allocation which was neglected for 20 years

29 december 2014 | RBC

The Chief Advisor to the Head of the Analytical Center Leonid Grigoriev outlined a Russia’s development scenario within the RBC project “Scenarios 2020”.

Leonid Grigoriev
Leonid Grigoriev
Chief Adviser to Head of the Analytical Center

Every year global oil consumption grows by about a million barrels, and according to experts estimates in about 15 years we will reach the world consumption peak – around 100 million barrels daily (compare to about 90 million barrels per day now), according to Mr. Grigoriev. The revolution in the energy carriers’ field is not at the threshold, and strong demand for oil will remain for a couple of generations.

There are two scenarios for Russia's development, which will be directly linked to an oil price range, according to Mr. Grigoriev. The key factor in both cases is the resources allocation within the country.

"If the oil price will gradually return to $70 p/b and then even to $80 (and it is a possible scenario), Russia’s economy will remain relatively stable, but slow and moderate", said the expert, adding that a viscous, continuous struggle for the rent split-up will take place, accompanied by an uptight domestic economic policy and conflicts of interest between various sectors.

"If oil prices decline, global physical demand will increase slightly (although it will not be too big in developed countries), as well as the share of OPEC in oil extraction. Let’s denote this scenario as "oil $60 p/b". In this case we can expect a significant deterioration of economic situation in which the government will have to face a problem: it will be necessary to somehow maintain consumption and still continue to invest for growth. Therefore, the key question will be in investment strategy, which slightly decreased in 2013 and 2014", said Mr. Grigoriev, describing this scenario as "a grim one" for Russia. It will provoke a fight for limited resources and the economy will be in stagnation, according to the expert.

"To sum up, in 5 years the difference in the oil price at $100-80-60 for Russia lies in the following. At $100 p/b we spent money on consumption and invested a little. Now, if the price returns to $80, we will need to keep the consumption level and invest. With a price of $60 p/b it is necessary to seriously raise the investment efficiency. Under these conditions a large budget deficit will not be maintained by the government, the government will not be able to invest big in the defense industry, and there will be no significant increase in consumption", considers the expert.

One way or another, Russia will have to consider rational resources allocation which was neglected for 20 years. "Russia’s economy will not be able to quickly get off the oil pipe. However now we have a chance to learn how to use these resources for future development", said Mr. Grigoriev.


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