Russia's Position Of Economic Strength Could Be Short-Lived

Could economic sanctions really damage the Russian economy, were there to be an invasion of Ukraine? The most likely answer is not much.

- Hamish Mcrae

In the short term, Russia is strongly placed. But in the longer run, it is actually much weaker than it seems and facing a very diffiult future over the next 30 years.

It isn’t helpful to speculate here about what Russia might do in the next few weeks, or the details of the response of the west. That is for the political and military strategists. But there are some basic economic realities that will not change much, whatever Russia does, and the first of those is the country’s reliance on oil revenues to fund the government.

Right now, that is very good news for Russia. Oil and gas revenues supply about one-third of the government’s income. It has budgeted for an oil price of around $45 a barrel. The current price of around $86 a barrel is nearly double that. If the Russian rouble were to fall vis-a-vis the dollar due to sanctions, this would actually increase the value of revenues in rouble terms. The surge in gas prices has been even greater than that of oil, so provided Russia can still find markets for its oil and gas, it has the money to fund whatever it chooses to do.