The Russian economy (catch all)

[OUTLAW 09]

Russian production isn't falling because of a shortage of reserves, it's falling because of a shortage of investment. In the short run the impact is the same, but a deficit of investment can be corrected, while a deficit of reserves cannot.

Russia suffers from a syndrome common to oil producers... one might call it the Venezuela disease. The problem arrives when the government begins to depend on energy revenue, rather that a diversified tax system, to fund its operations. That typically leads to a place where the government ends up absorbing money that the energy industry needs to re-invest in operations in order to sustain its productivity. That inevitably leads to lower production, and to the government taking an ever higher percentage of falling revenue, leaving less and less money to reinvest. Venezuela looks to be entering the final stages of that death spiral; Russia has a way to go.

It is worth noting that Russia could balance its budget with oil at $90. They could balance it with oil at $80. BUT... they would have to raise taxes, quite substantially. They have room to do that: Russian income tax is a flat 13% regardless of income, and other taxes are similarly low relative to developed countries. It would not be a popular move, though, especially dring a recession. That's the danger you get into when you rely on oil money and let the people get used to low taxes.

It will be interesting to see what they decide to do.

Dayuhan---here is the same problem again---taken from the source you do not like but sometimes actually accurate the web.

Here is an unusual admission from a Russian in the know concerning oil:

Lukoil's Alekperov unusually open about hit to oil industry from sanctions - says 25% of oil from fracking - Interfax

This goes to the loss in production by 2020---heavy fracking in the older fields in needed as they are losing both in volumes and production rates.

25% is a heavy percentage--nowhere close to that in say older US fields.

That is why this last round of sanctions was bad for Russia---it hit the fracking side of both gas and oil thus Russia in the long haul cannot even keep that percentage stable. It hit also the US oil/gas services companies Russia is heavily dependent on for their fracking and artic drilling--Russia simply does not have that capacity inhouse to replace them.

They will be hurting production wise in about 9 months if these particular sanctions stay in place as it seems they will---there was also a side comment concerning OPEC--they sense that OPEC is keeping their production run rates on sour at record highs---almost contributing to the falling sour crude prices..