What is an oil needle? Myth 1: Russia is a gas station country

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:40

Some Russian and Western political analysts argue that Russia is dependent on the export of hydrocarbons. Everything is very simple. After all, Russia is a large global gasoline dispenser. The term "oil needle" implies dependence on income received from the export of "black gold". In this situation, the country's economy develops only when prices for petroleum products are stable. Immediately with the fall in the cost of a barrel in such a state, economic collapse begins. In this article, we will find out the answer to the main question: "Does the oil needle threaten Russia?" Let's debunk the myths about oil, the ruble and Russia. You will also learn how dependent our country is on the export of hydrocarbons.

Russia's dependence on mineral exports

Revenues from "black gold" and light hydrocarbons occupy a significant share of profits from internation altrade. Indeed, if you look at the share occupied by the export of gas from Russia and oil, then the value will be quite large. Half of Russia's foreign trade income comes from hydrocarbons. However, mining accounts for only 21% of the country's GDP. 16% is allocated for key minerals in these statistics.

The share of income from the export of petroleum products in Russia's GDP

Russia's GDP in 2013 amounted to $2,113 billion. Oil exports from Russia in 2013 brought the country 173 billion dollars, and the state economy earned about 67 billion dollars from the sale of gas. It turns out that the income from "black gold" amounted to 8% of GDP, and the country earned 3% of its gross domestic product from volatile hydrocarbons. With each subsequent year, statistics of an active reduction in the share of income from mining in the country's GDP are observed.

Statistics show that the resource curse does not threaten Russia. The Russian Federation is an active player in the global oil products market due to its size and large hydrocarbon reserves. Because of this, the country gets the opportunity to influence the geopolitical situation. However, unlike many other world oil exporters, the Russian economy is much less dependent on "black gold" and its prices.

Per capita income from hydrocarbon exports in Russia

There are quite interesting statistics in Russia. It is worth taking a close look at per capita oil export revenues. This indicator in Russia is 10times less than in Norway, which is also a major European exporter of hydrocarbons. However, even in this country, the share of export earnings in total GDP is insignificant. Norway does not sit on the oil needle, although it turns out more per citizen. In this state, the population does not receive income from the export of minerals, since all funds are directed to a fund for future generations.

For countries such as Saudi Arabia or the United Arab Emirates, in relation to which the term "oil needle" can be used, much higher per capita income from exports is characteristic. Their inhabitants are so dependent on fossil fuels that if the price of black gold falls, they will face a significant decrease in income. On the other hand, since the share of profits from hydrocarbons in the country's GDP is not significant, Russia is not able to provide its citizens with such powerful oil social support as some Arab countries do.

Given the fact that the entire world economy is pegged to the dollar, as well as energy prices, immediately after the depreciation of the US currency, the income of residents of the Arab oil exporting countries will significantly decrease. The Norwegian fund with savings for the future will also depreciate. Russia will not suffer significant economic losses from falling oil prices, since our country only receives certain benefits from the export of hydrocarbons, but is not dependent on minerals.

Part of resource rent in the total GDP of the Russian Federation

In 2015, Forbes journalists,finally admitted that Senator John McCain, who is an active supporter of the war with the Russian Federation, was wrong in calling it the world's gas station. The publication indicates that in the Russian Federation there is at least a service sector and a manufacturing industry.

The author of the article, Mark Adomanis, gives as an example a rather interesting diagram, which shows the share of raw material rent in the GDP of different countries of the world. In Russia, this figure is at about 18%, which puts the country in 20th place in the ranking.

This figure is very low compared to countries that really depend on the export of fossil fuels like the Congo, Saudi Arabia or Qatar, where the share of raw material rent is at the level of 35-60%. These are the states that need to get off the oil needle.

If we remove the income from the export of such products for Russia, its GDP will still be at a fairly high level, and the country will be able to remain a significant competitor for other world leaders. Indeed, only 24% falls on the extraction of minerals in the country's industry. The rest goes to infrastructure facilities (such as power plants) and processing industries.

Myth No. 1. The price of oil greatly affects the ruble exchange rate

There is an opinion that the ruble exchange rate is strongly influenced by oil prices. If you look at this question objectively, then a certain dependence is indeed observed. However, the exchange rate is influenced by many factors, which is why one should not overestimate the importance of prices fordomestic economy.

As an example, look at Libya or other countries on the oil needle, where the share of income from energy exports per capita is very significant. The exchange rate of the Libyan currency during the fall in prices on the oil market should have fallen much more than the exchange rate of the ruble. Nevertheless, the economy of this country has demonstrated stability. This indicates that fluctuations in the price of black gold do not significantly affect the exchange rate of the national currency.

The Russian ruble is suffering from regular speculative attacks from Western politicians and business representatives. The course jumps because of the foreign policy situation, but not because of the influence of oil prices. The cost of a barrel is not the main reason for the fall of the ruble.

Myth No. 2. If the price of a barrel of oil falls, the Russian economy will collapse

The above information shows that oil prices have some influence on the formation of the state budget. However, the dependence is not so significant, and the government is taking active measures to further reduce the impact of the situation on the international market on the economy. Modern processing enterprises are being built, which in the future will bring state budget revenues from the export of finished petroleum products, and not raw materials, the prices of which are quite unstable. Such measures will help the country to make the revenues of the economy more decentralized. The export of oil from Russia is much less profitable than the sale of finished gasoline to other countries. On the other hand, pumping gas and "black gold" from Russiaputs consumer states in a certain dependence, which makes it an active geopolitical player and allows it to influence world politics.

Even if the income from oil exports completely disappears, the budget will lose only superprofits that are spent on investments, modernization of the country and large infrastructure projects.

In such a situation, a temporary freeze of large-scale work is possible, but a stable payment of pensions, salaries and benefits will remain. The oil needle does not threaten Russia because of the large gold and foreign exchange reserves. Even if energy prices fall sharply, after which they remain at this level for a long time, the budget deficit will be easily offset by the world's largest gold reserves.

State budget revenues from oil and gas go to the development of the country, but the economy will be stable. Russia will be able to fully provide for itself, even in the event of a complete cessation of income from hydrocarbons.

When the cost of oil falls, the dollar rises against the domestic currency. As a result, the state budget of the country does not lose anything in ruble terms.

Myth No. 3. In the near future, hydrocarbon reserves will be depleted and the country will go bankrupt

At the moment, a regular accounting of fossil energy resources is being carried out, as well as a calculation of the time during which it will be possible to maintain the current volume of mineral production and ensure stable gas exports from Russia abroad. Experts say that the declared balances will be enough for the countryto maintain production rates for 30 years. On the vast territory of the country, new mineral deposits are regularly discovered, which significantly increases Russia's long-term potential as a player in the energy market. The oil needle of the USSR and the Russian Federation today is that the country will have to fully provide itself with hydrocarbons in the future. When the declared sources are empty, there will be a need to import oil products. However, the government is investing heavily in exploration of domestic mineral deposits, which will allow new deposits to be developed in the near future.

For example, in 2014, oil deposits were found in the Astrakhan region. The source of the fossil is on land, making it easier to mine. The high quality of raw materials will ensure the possibility of processing into expensive petroleum products.

In the same 2014, the Russian Federation began to extract minerals in the Arctic on the world's first polar oil platform. The continental shelf of Russia is considered one of the largest in the world. Only in the Arctic part there are more than 106 billion tons of gas and oil products.

Even in a situation where cheap hydrocarbons run out, coal reserves will last for many more decades. Also, statistics show that gas in the country will not end soon. Russia will be able to fully satisfy its own energy needs through the construction of power plants on numerous Siberian rivers, which have great potential in terms of building hydroelectric power plants.

Also worth itmention the domestic nuclear power program. The government is investing billions of rubles in the construction of modern nuclear power plants, the capacity of which will be enough not only to meet the energy needs of the inhabitants of Russia, but also for export. Fuel for blocks of nuclear power plants will last for hundreds of years. Russia has every prospect of remaining a world exporter of energy resources and becoming one of the superpowers even if the oil era ends.

Myth No. 4. The Russian Federation earns only on the sale of raw materials, without developing its own industry

Russia's oil needle, according to some experts, is not the dependence of the economy on the export of minerals, but the fact that the country sells only raw materials abroad. Such a statement is erroneous.

Indeed, Russia sells crude oil around the world, giving away some of the potential income to foreign refiners. However, such cooperation is also very beneficial for the Russian economy, as it provides high returns for investment in the short term.

If earlier the country exported mainly oil in its pure form, then since 2003 the government began an active modernization of the domestic processing sector. Gradually, the share of the crude product in the total volume of hydrocarbon exports is declining. Russian manufacturers are actively entering the world market, which fills the budget with even greater profits. Since 2003, the volume of production of finished petroleum productsincreased many times over.

Myth No. 5. Under the rule of Vladimir Putin, the dependence of the state budget of the Russian Federation on exports has increased

Some narrow-minded domestic and foreign experts “scold” Vladimir Putin for driving Russia into oil dependence. They prove this by the fact that in 1999 the share of hydrocarbons in exports was only 18%, by 2011 it was 54%.

The accusations have no economic justification, because 2 important facts are not taken into account:

• In 1999, many oil companies of the oligarchs simply did not pay taxes. The money was sent immediately to accounts opened in foreign banks, and the state budget revenues from such exports were zero. In 2018, most oil companies operate transparently, and profits from oil and gas exports replenish the state budget.
• In 1998, the cost of a barrel was 17 USD. In 2013, there was a maximum price of 87 USD. Such a jump provided a significant increase in revenues to the country's budget from the development of oil wells and gas production.
• The federal budget is far from the only one in Russia. There are many local estimates of the constituent entities of the Russian Federation, which is why the real share of income from hydrocarbons in the country's financial system is further reduced.

In statistics, it is also worth considering the main point, as the total value of the state budget. Over the past 12 years, the country's income has increased 14 times. At this time, the profit from hydrocarbon production increased 40 times. Receipts from otherssectors of the economy grew 7.5 times.

Even if we imagine that suddenly at one moment the country will be completely without oil and gas revenues, then budget revenues from other sectors will remain, income will be 6 times higher than in 1999. Given the inflation of the dollar, the country's income will be many times higher than at that time. The oil needle does not threaten Russia, both in the short and long term development. Since it is the real facts that indicate that the country's dependence on minerals has decreased.

Which countries are on the oil needle

Russia's development is highly dependent on revenues generated from oil and gas exports. Nevertheless, the stability of the economy and self-sufficiency can provide large reserves and the potential of other sectors of the economy. In fact, the oil needle is the state that is dependent on the import of Russian hydrocarbons. The government of the Russian Federation can use energy resources as an effective lever of influence in the geopolitical arena. It is the export of oil and gas that makes Russia an active global player, and also provides weighty arguments in negotiations with the leaders of other countries.