High Oil Prices Stress Russian Economy

With prices reaching 70 USD, the gold-foreign exchange reserves of Russia have grown by 200 billion USD. What will happen when the price of a barrel exceeds 90 or 100 USD (as forecast for 2007 by Goldman Sachs)? Apart from the aforementioned 200 billion USD, there is also a rather large surplus in the Russian oil fund (formed in the Norwegian tradition), that should function as capital for future generations, those that may mot have an opportunity to exploit oil and to live off natural resources. The rise of oil prices also provides the secure growth of Russian GDP, the possibility of restructuring, and the early payment of foreign debt, resulting in an increase in the However, the other side of the coin has Russia entering a so called state of “revived economy”, and in the long term this can be even more dangerous than a decrease in energy substance prices. So, monthly inflation this year oscillates from 1.5 to 3% a month, and accompanied by the fall in the dollar and a steady “raw material” rouble, is causing an erosion of earnings for those citizens whose salary is fixed in so called “conditional units” to the dollar exchange rate plus-minus 3%. The number of such citizens is not something that can be ignored, particularly in Moscow and Petersburg, the basic consumer centres of Russia. And while consumption and import (above all of mass consumption goods) are growing intensively, economic growth and industrial production are slowing down. The question is where these easily earned oil dollars are going? That is, why aren’t they sufficiently directed to the growth of industrial production, technological development and diversification of Russian import in a way the Kremlin would like to see?

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