It’s déjà vu all over again: COVID-19, the global energy market, and the Russian economy

ABSTRACT

The COVID-19 pandemic has already disrupted large swathes of the global economy, threatening the growth models of major oil and gas producer countries like Russia. A collapse in oil prices, triggered by the pandemic, once again exposed Russia’s enduring susceptibility to sharp falls in oil and gas prices. We argue that this decline in oil prices came at a time when tectonic shifts in global energy markets had already threatened to reduce the value of future oil and gas revenues. These structural changes were accelerated by the collapse in demand caused by the pandemic. Because the Russian leadership had done little to address the threat posed by the emergence of a new energy order, the economy remained highly dependent on oil and gas sales as the primary source of growth. While measures undertaken since 2014 to reduce the government’s fiscal dependence on high oil prices will help Russia avoid a worst-case outcome of a fiscal or financial crisis, the dependence of other branches of the economy on the energy sector remains high. This has left Russia set once again to experience a deeper recession than that forecast for other energy exporting economies.

KEYWORDS:

• Russia
• oil
• COVID-19
• budget
• support
• prospects

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. For more on the relationship between oil prices and growth, see Tabata (2006).

2. The latter are discussed in Hanson (2019).

3. The Zvezda complex is discussed in Connolly (2018, 98–100).

4. The document is discussed in detail in Mitrova and Yermakov (2019).

Additional information

Funding

This work was supported by the Engineering and Physical Sciences Research Council [EPSRC EP/L024756/1]; Natural Environment Research Council [NERC NE/G007748/1].