Oil prices stand at a three year low of $81 per barrel. That’s significantly less than the $100 per barrel that was in place when Vladimir Putin first invaded Ukraine.
Half of Russia’s budget depends on oil and gas trading.
Despite having a large and comfortable international currency reserve of $450 billion, the Russian stock market has been down 6% in the last three months.
Also, the Ruble is 20% below the dollar in value this year.
Add to that a projected Russian economic growth of just 0.5% in 2014 and 0.3% in 2015 and a feared recession, and things just don’t look great for Vladimir Putin.
“We’re probably getting closer to the point of pain,” said Phil Flynn, an energy analyst at the Price Futures Group. “It’s definitely putting the squeeze on their balance sheet.”
Vladimir Putin is writing some ambitious checks that his budget may not be able to support. Russian news agency Itar-Tass reported that Putin wanted to expand military spending by 21% next year, but Russian Finance Minister Anton Siluanov says that Russia simply can’t afford it.
So, while Vladimir Putin and Russia’s government may feel the squeeze of dropping oil prices, will it affect Russian citizens?
Michael Fitzpatrick, a former energy analyst with the Kilduff Report, says it likely won’t. Unless things get substantially worse.
He says of falling oil prices,
“I don’t think you’re looking at any political or social unrest unless prices go considerably lower.”
However, Russia isn’t the only country to be somewhat deflated by dropping oil prices.
The countries of Saudi Arabia, Libya, and Iraq have also been wounded. Nigeria, Venezuela, and Iran are also feeling deeper budget deficits due to falling oil prices. So much so, that the government of Venezuela has called for an emergency meeting of the Organization of the Petroleum Exporting Countries, or OPEC.
Falling oil prices remain a good thing for the general population, though.
“In the short term, oversupply and lower oil prices clearly have some positive impacts,” said a report by the Center for Strategic and International Studies. “They are good for economies and consumers, helpful for sanctions efforts against rogue states, and serve as buffers against continued political unrest and supply disruptions.”
“But, they also carry the seeds for future troubles, including under-investment in efficiency and alternative energy forms as well as in future oil and gas projects, and can have mixed climatic impacts, and eventually lead to higher prices.”
What do you think of falling oil prices? Good thing or bad thing?