{"id":235692,"date":"2026-01-13T14:17:21","date_gmt":"2026-01-13T14:17:21","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/235692\/"},"modified":"2026-01-13T14:17:21","modified_gmt":"2026-01-13T14:17:21","slug":"why-russias-economy-is-unlikely-to-collapse-even-if-oil-prices-fall-phillip-inman","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/235692\/","title":{"rendered":"Why Russia\u2019s economy is unlikely to collapse even if oil prices fall | Phillip Inman"},"content":{"rendered":"

Pacing inside the Kremlin last weekend, as news feeds churned out minute-by-minute reports of Donald\u2019s Trump\u2019s Venezuelan coup, Vladimir Putin may have been wondering what it would mean for the price of oil<\/a>.<\/p>\n

Crude oil has lubricated the Russian economy for decades \u2013 far more than gas exports to Europe \u2013 and so the threat of falling oil prices, prompted by US plans for control of Venezuela\u2019s rigs, will have been a source of concern.<\/p>\n

Opinion is divided on how quickly the South American country\u2019s creaking oil industry can be revived. But some analysts believe that Venezuela, home to the world\u2019s largest proven reserves, could be pumping millions of additional barrels as early as this year, hitting the global price and squeezing Russia\u2019s income.<\/p>\n

US sanctions on Rosneft and Lukoil<\/a> last year and a rise in the rouble, depressing income from oil sales in dollars, have already reduced receipts for Moscow.<\/p>\n

Optimists argue that after four years of war in Ukraine<\/a>, Putin is increasingly vulnerable because Russia\u2019s financial position is precarious. A fall in oil prices, they say, would have a catastrophic effect on his ability to fund the war and continue grinding down Ukrainian resistance.<\/p>\n

They portray the Russian economy as a house of cards, ready to collapse if only the right gust of economic pressure could be directed at Moscow.<\/p>\n

\"WhyWhy has Trump seized a Russian-linked oil tanker? | The Latest<\/p>\n

Economic growth, spurred by government military spending, has slowed to almost zero after the Kremlin sought to calm the inflation caused by that same economic expansion. The International Monetary Fund predicted growth of 0.6% in 2025<\/a> and 1% in 2026.<\/p>\n

Interest rates are high at almost 20% and taxes are due to rise again this year. Unemployment has fallen to almost 2%, reflecting a severe labour shortage as young men are drafted into the army amid falling birthrates and an exodus of middle-income families to the west.<\/p>\n

Household incomes, which have grown in response to higher welfare spending, are now expected to stagnate. A paper by Marek Dabrowski, an analyst at the Brussels-based thinktank Bruegel, says the latest budget cuts have transferred from Moscow to the regions and reduced pension spending, with education also facing cuts. Business leaders complain there is little incentive to invest in such an environment.<\/p>\n

Some point to Iran, where a combination of sanctions and targeted military strikes has brought the economy to its knees, leading to food shortages and riots that threaten to topple the authoritarian regime.<\/p>\n

Could the same fate await Russia if sanctions are tightened and oil prices fall, forcing Putin to retreat behind the old borders while he attempts to quell internal strife?<\/p>\n

Last month, a group of economists gathered at the Brookings Institution in Washington to explore how tougher and more dynamic sanctions could further damage Russia\u2019s war effort.<\/p>\n

Since the full-scale invasion of Ukraine in early 2022, Moscow has bought a huge secondhand fleet of more than 400 vessels<\/a> to ship oil to Turkey, India and a host of other countries<\/a>. That \u201cshadow fleet\u201d has shrunk since 2024 to about half its former capacity, forcing Russia to rely on European-insured vessels to ship its oil.<\/p>\n

If European financial centres \u2013 London chief among them \u2013 were to take a tougher line on what they insure, Russian oil revenues could be severely hit.<\/p>\n

Yet this analysis ignores the successful rewiring of the economy by Putin\u2019s administration, which has proved more adept in its handling of domestic politics and the government\u2019s finances than it did the military in the first three years of the war.<\/p>\n

Russia can, and should, be hurt financially by further sanctions. But European leaders and Ukraine\u2019s valuable allies in the US Congress, who have done so much to prevent Trump from siding wholeheartedly with his kindred spirit Putin, should not delude themselves into thinking that the Russian economy is on the brink of collapse.<\/p>\n

While economic growth has slowed to a near standstill, the broader strategy resembles a medically induced coma \u2013 designed to insulate the patient from unwanted outside interference.<\/p>\n

As optimists note, much of the government\u2019s reserves are spent and oil revenues have fallen from 50% of state income to 25%. Yet Putin has found internal resources to fill the void, chiefly through higher taxes on households and businesses.<\/p>\n

Richard Connolly, at the Royal United Services Institute thinktank, says: \u201cThe Kremlin has succeeded in selling the war, not as a battle with its near neighbour \u2013 its brothers and sisters in Ukraine \u2013 but as a war with the west.\u201d<\/p>\n

On the impact of sanctions so far, he adds: \u201cWe are not near the economy being a decisive factor in the Kremlin\u2019s thinking about how to pursue the war.\u201d<\/p>\n

Russia\u2019s debt-to-GDP ratio is just below 20%, while the annual spending deficit is about to hit 3.5% \u2013 modest by international standards, particularly when compared with the UK\u2019s 11% deficit in the year Covid hit and a debt-to-GDP ratio of about 95%.<\/p>\n

Inflation soared after the invasion but has since been tamed, falling towards 6%, only modestly higher than the central bank target of 4%.<\/p>\n

Vladimir Putin and the Indian prime minister, Narendra Modi, in Delhi last month. India is turning away under a tougher sanctions regime. Photograph: Grigory Sysoev\/Reuters<\/p>\n

There is little doubt that Putin is turning the Russian economy into a junkyard, full of ageing and increasingly dysfunctional factories. He is milking it to aid the war effort without a care for the long-term consequences. But in the short term \u2013 this year and perhaps next \u2013 he can continue to fund the conflict without fearing economic collapse.<\/p>\n

China remains a friend and buyer of oil, while North Korea supplies people and kit, even if India and other beneficiaries of trade with Russia turn away under a tougher sanctions regime.<\/p>\n

Ukraine, meanwhile, has the money to continue for between 18 months and two years after the promise of \u20ac90bn from the EU. Putin, for his part, has the reserves to keep paying young men and their families to fight on.<\/p>\n

On Friday, Russia launched hypersonic Oreshnik missiles<\/a> at western Ukraine in a stark escalation of the conflict. The message for Europe is clear: it must help Ukraine push back harder militarily, ignoring Putin\u2019s empty nuclear threats, while tightening the tourniquet on Russian trade.<\/p>\n

Four years of weak sanctions gave Putin time to reorganise. A tougher stance on trade may not trigger an economic collapse but Europe needs to work every angle to bring the war to an end.<\/p>\n","protected":false},"excerpt":{"rendered":"Pacing inside the Kremlin last weekend, as news feeds churned out minute-by-minute reports of Donald\u2019s Trump\u2019s Venezuelan coup,…\n","protected":false},"author":2,"featured_media":235693,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[114,184,85,46],"class_list":{"0":"post-235692","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-il","11":"tag-israel"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/235692","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=235692"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/235692\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/235693"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=235692"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=235692"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=235692"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}