Question:
Does oil and gas have positive effects on russia?
Economy of Russia is highly dependent on price of oil and natural gas as the country is one of the largest producer of crude oil. Recently price of oil decreased rapidly due to decreasing demand in some countries. However Nardelli et al., (2014) stated that production of oil increased in US. As supply of crude oil increased, price of each barrel reduced. Analysis on global economy indicates that reduction in price of natural gas impacted economical condition of many countries. Reduction in price of oil also impacted on economy of Russia also. As stated by IJsseling and Schaap, (2013) economic growth of Russia may shrink due to reduction of oil price. Tavana et al., (2012) also opined that production of oil needs to be reduced in order to stabilize the price. The current essay deals with analysis on the effects of oil and gas industry on Russia. The economic condition of Russia is influenced by price of oil and gas. Both positive as well as negative effects of fluctuations in oil and gas industry on Russia are discussed in this essay. The effects may be good and sometime bad. The paper attempts to answer the question that whether the effect of this industry reflects a good sign or bad sign in the Russia.
Russia experienced rapid transition in last century due to Government’s focus on oil and gas industry of the country. It became one of the largest economies of world. As an impact of rapid economic growth Russia was included in league G-20 countries. As oil and gas industry is one of the largest contributors of GDP of the country, the GDP almost doubled in last part of the century. The growth of Russia was maximized in early 2000s. As stated by Shaffer,(2015) growth rate of Russia was influenced significantly due to sustained oil prices in global market. However investment on oil and gas industry also increased at that time. Qiu, (2015) opined that increased investment in oil and gas sector also fueled growth rate of the country. On the other aspect in negative sense according to Nardelli et al., (2014) the effects of oil prices to economy of Russia is well known. As price of crude oil fell more than 50% in last few months, it is expected that GDP of Russia is going to decrease (Motomura, 2014).IJsseling and Schaap, (2013) also stated that effects of rapid reduction in oil price will be observed on economic stability of the country also. Bradshaw, (2015) stated that rate of inflation may increase in Russia due to reduction in oil price in global market.
Discussion on economy of Russia also indicates that growth in oil and gas sector of the country was effective to reduce negative effects of global financial crisis in 2008-2009. Although GDP of the country fell during global financial crisis in 2008-2009, steady price of crude oil was effective to increase the GDP later. Papavinasam, (2013) stated that the activities related with economic welfare in Russia is dependent on extraction of crude oil and natural gas. The country is one of the largest providers of oil and gas in European and Asian countries. Exporting fossil fuels in these countries and collecting taxes from organizations of oil and gas industry enabled the Russian government to increase budget revenues. As stated by Boussena and Locatelli,(2013) fluctuations in oil prices will not only impact on economic growth rate of Russia, but foreign policies of the country can also be impacted due to reduction in demand of crude oil and natural gas. Analysis on economic condition of Russia indicates that the different activities related up gradation of infrastructure in the country is dependent on revenue earned from oil and gas industry.
As the Government of Russia gives importance on modernization of its military forces, cost of conducting these activities is increasing continuously. As contribution of oil and gas sector in national GDP is reducing, the modernization process of armed forces may be interrupted. As price of the crude oil is reducing rapidly, income of the country from this sector is also reducing. Funding of activities related with up gradation of armed forces of Russia will also be affected due to reduction in oil price. Birnbaum and Morello, (2015) opined that reduction in oil price of Russia may influence political relationship with other countries. As Russia is one of the largest providers of oil and natural gas to many countries, activities of Russia can influence policies of these Asian as well as European countries. Discussion on international oil and gas industry indicates that demand of oil is decreasing in several countries. It is evident that influence of Russia on these European and Asian countries is going to decrease.
It is evident that reduction in oil prices is impacting negatively on budget of the country. As the Government of Russia gives emphasis on maintenance of its military force, investment for up gradation of armed forces may not reduce. It indicates that the Government can reduce investment in other sectors of the country. It may affect overall growth of Russia. But on the other stand point it can be claimed that this industry is the most profit making industry in the world. So, the positive effects of the industry influence the economy of a state. It defiantly increases GDP.
As demand of oil is reducing in many countries, market of Russia is shrinking. After Russia’s invasion in Ukraine, the European countries are pressurizing Russia. Increased pressure from European countries is also affecting oil market of the country. Although the government of Russia is giving importance on making alliance with China to retain their share in oil market, it may not be effective to increase market size. Apart from thus, the demands of consumers in oil and gas industry are also changing. Previously the demand of LNG (liquefied Natural Gas) was higher in Europe. As an impact, Asian market was more attractive to Russian suppliers. In recent years, the demand of LNG is also increasing in Asian market. Decreased demand of crude oil in China, one of the largest markets of Russia, is making the Asian market less profitable. Increased availability of alternative suppliers of LNG is also affecting economic growth of Russia. The analysis indicates that changes in oil and gas industry is not affecting current growth of Russia, it may impact on future growth of the country also.
Conclusion:
Discussion on effects of oil and gas industry on economy of Russia indicates that previously the sector was one of the largest contributors of national GDP. However the condition in oil and gas industry is also changing. Demand of oil is reducing in much country. As an impact market size of Russia for exporting oil and gas is reducing. Increased pressure from other European countries is also leading to reduction in growth rate of the country. The requirements of consumers in oil and gas industry are also changing. Increased demand for LNG is also affecting present and future growth of the country. Russia can be considered as one of the largest producers of crude oil and natural gas. From the analysis it is evident that economy of Russia is greatly dependent on price of oil and natural gas. In last few months price of oil decreased rapidly as demand of fossil fuels decreased in some Asian and European countries. Reduction in oil prices reduced budget revenue of the country. As an impact, the investments in different sectors reduced significantly. It is evident that lowered price of oil affected both long term and short term growth of the country. Although oil and gas industry was influenced growth of Russia, too much dependence on this sector restricted the country from attaining sustainable growth rate.
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