Russia might not have to worry about oil prices this

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Unformatted text preview: stuck at the level of Japan she warned, something no decent developing nation would wish on their worst enemy . Japan is lucky if it grows 1% a year on average over the course of a five year stretch. Russia’s economy grew 4.3% last year, and is forecast by the government to grow at 3.7% if Urals oil price averages are $100 per barrel. She warned that a fall in GDP growth rates by 0.7-1.7% will cause “a rapid loss of (Russia’s) share of the global market and, what is most important, will reduce opportunities for increasing incomes and living standards.” As an investment story, Russia is known as an oil and gas play. Like the country or not, where oil goes, Russia’s economy will go right along with it. That’s great when Brent crude and its accompanying cheaper oil, Urals, is well over $80 a barrel. High oil prices is helping finance the new skyline of Moscow. Across from the Moscow River, near where Stalin built his great architectural works in honor of the Russian peoples’ success in World War II, are shiny silver and gold skyscrapers with Sberbank and VTB Capital logos on them. Moscow wants to be a miniFrankfurt. Better yet, bigger than Frankfurt. It wants to be one of the biggest financial markets in the emerging world. Brazil and China have it beat. Russia’s one trick pony economy is why. Last October, Alexei Kudrin, then Finance Minister of Russia, said that the economy would be okay if Urals priced at $60. Below that and you get budget deficits and credit contraction. That’s no way to build for the future, especially in Moscow, which at first glance is aching to modernize and doing so as fast as Russia can. Russia might not have to worry about oil prices this year, and maybe not even next year. But Russia will be around for many years after that and oil prices are not expected to rise forever. At some point, China growth will stabilize. That is actually happening now. India will stabilize. Europe will continue its move away from oil, as will the U.S. It’s demand will stabilize. That might not be the case for another five to 10 years, but Russia will still be on God’s green Earth and if the good Minister is correct in her assessment, and everyone who watches Russia closely knows she is, then Russia will be in for a long, cold winter despite its collection of cheap Gazprom gas. It’s not that Russia doesn’t have the brain power to get over its oil addiction. The government is investing millions in backing start-up entrepreneurs out of the newly created Skolkovo Iniative, a mini-Silicon Valley, or so it hopes, in the suburbs of Москва (that’s Moscow). It’s got the brain power and the tech talents to build a more innovative economy, but moves to do so are still in their infancy. Only very recently has Russian venture capital started to discover Russian entrepreneurs. Only recently have Russia’s biggest funds like Troika Dialog tried to tap the rich U.S. market to convince American institutional investors that Russian financial markets are worth investing in 152 Oil DDW 2012 1 Oil Key – Russia Econ 153 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Oil is vital to the Russian economy – Gazprom dependency Nilsen 3/27/12 [Thomas Nilsen, editor of Barents observer former...
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