The decline in the global oil price will not lead to the collapse of Russia’s economy

When Russian President Vladimir Putin was moving around the Kremlin last weekend, amid the rapidly spreading news about the operation carried out by US President Donald Trump in Venezuela and the arrest of President Nicolas Maduro, all that was on his mind was one question, centered around the impact of this incident on global oil prices.

Crude oil has helped stimulate the Russian economy for several decades, more than the effects of gas exports to Europe, and therefore the threat of falling oil prices, resulting from US plans to control Venezuelan oil, was a major concern.

Opinions are divided over how quickly Venezuela’s faltering oil industry can recover, but some analysts believe that Venezuela, which has the world’s largest proven reserves, may start pumping millions of additional barrels as early as this year, which will impact global prices and put pressure on Russia’s revenues.

The sanctions imposed on the two Russian oil companies, Rosneft and Lukoil, last year, in addition to a rise in the price of the ruble, led to a decrease in income from oil sales in the dollar currency, and thus to actually reduce Moscow’s revenues.

Optimists argue that after four years of war in Ukraine, Putin is in a more dangerous situation, because Russia’s financial situation appears uncertain, and they say that the decline in the price of oil would have disastrous effects on his ability to finance the war in Ukraine.

They portray the Russian economy as a “cardboard house” that could collapse as a result of any sufficient economic pressure that can be exerted on Moscow. Economic growth, stimulated by government military spending, has slowed to near zero, after the Kremlin sought to calm the inflation resulting from this same economic expansion, and the International Monetary Fund expected growth of 0.6% in 2025, and 1% in 2026.

The interest rate has now risen to about 20%, while taxes are expected to rise this year, and the unemployment rate has fallen to about 2%, which reflects a major labor shortage, given that young people have been sent to the army, amid a decline in the birth rate, and the departure of middle-income families to the West.

Last month, a group of economists met at the Brookings Institution in Washington to consider how tougher and more dynamic sanctions could further harm the Russian war effort.

Since the war in Ukraine, at the beginning of 2022, Moscow has purchased a huge fleet of used ships, more than 400 ships, to transport oil to Turkey, India, and many other countries. This “alternative fleet” has shrunk since 2024 to about half of its previous capacity, forcing Russia to rely on European-insured ships to transport its oil.

Optimists believe that Moscow has exhausted most of the government’s reserves, and oil revenues have decreased from 50% of state income to 25%. However, Putin has found internal resources to fill this shortage, especially by increasing taxes on families and companies.

“The Kremlin succeeded in marketing the war not as a battle with its close neighbor Ukraine, but as a war with the West,” says Richard Connolly, of the Royal United Service Institute think tank. Speaking about the impact of the sanctions so far, he added: “We have not yet reached a stage where the economy becomes a decisive factor in the Kremlin’s thinking about how to continue the war.”

The debt-to-GDP ratio in Russia is approximately 20%, while the annual spending deficit is close to 3.5%, which is a modest rate according to international standards, especially when compared to the United Kingdom’s deficit of 11% in the year that witnessed the outbreak of the Corona pandemic, and the debt-to-GDP ratio of about 95%.

In turn, inflation rose sharply after the war began, but has since fallen to about 6%, slightly above the central bank’s target of 4%. China remains a strong ally and buyer of oil, while North Korea supplies Russia with people and equipment.

In fact, four years of sanctions did not lead to the collapse of the Russian economy. Rather, Putin was able to buy time to reorganize his ranks, and it is believed that the tightening of the trade stance will not lead to an economic collapse for Russia. About the Guardian

• 4 years of sanctions did not lead to the collapse of the Russian economy, but Putin was able to buy time to reorganize his ranks.