Pandemic coronavirus called “black Swan” that hit oil prices and the ruble exchange rate, but this is only partly true. The main thing that you must understand when coronavirus hysteria will subside, it is fundamentally easier for the Russian economy will not become, as real incomes continue to fall.
Network analyst Vadim Zhartun describes in detail how this will happen:
Most of us have seen the spectacular footage from the Wuhan — empty streets, people in masks, building a Grand hospital, the doctors, carrying someone on a stretcher straight from the street, and so on.
But the statistics of industrial production in China in 2019, few have seen, though to economists it looks worse than map the spread of coronavirus from sprawling in all directions the ominous red circles: in August 2019 China’s industrial production grew by only 4.4%.
Well, look at me! — says the inhabitant — so, all right? Alas, no: this is the lowest value over the last 17 years. In Japan, the figure balances near zero, while US industrial production has been falling for five consecutive months, and all this — mind you! — started happening long before the beginning of the epidemic.
This means that the world economy started to enter into the next cycle of recession and without the aid of a coronavirus. In part, this contributed to a trade war between China and the United States, but the new crisis has come — so runs the world economy, alas.
And what inevitably leads economic slowdown and decline in industrial production? Correctly: to reduce the demand for energy — oil, gas and coal.
The price of oil, incidentally, is also subject to cyclical fluctuations, but with a large period of about 30 years. Here, it is necessary to specify around which they oscillate: the normal price for oil now, if you look at the trends since 1875, is not $100 but around $48 per barrel. Oil can sometimes cost more expensive, maybe cheaper, but the pendulum swings around this figure.
Guess which phase of oil prices we are now? Prompt: in 2014-2016 was passed peak, and now we are 15-year period of low and stable oil prices.
On the demand side for energy is also not too rosy. Total energy consumption in the world is still growing by about 2.4% per year. About half of this figure given the growth of energy consumption per person, the remaining 1.16 percent — population growth. That’s just population growth slows down, and the energy consumption in developed countries due to the energy saving decreases.
Crazy pace (over 17% per year) increasing alternative energy, electric cars displace gasoline cars and, as a result, the relatively modest growth in oil consumption (0.7 percent per year) in the current year is zeroed out. And next year, even without taking into account the effects of coronavirus, was first predicted for many decades the decline of its consumption.
With mining there are no problems. There is shale oil, there are tremendous reserves of Venezuela, have Iran under the sanctions of oil in the world oceans.
And, are there any factors that could support the falling oil prices? Until recently, one was an agreement by OPEC on reducing oil production.
I must say that from the beginning I was skeptical because of OPEC, there are two fundamentally unsolvable problem.
First, it does not control the entire market and, for example, the American oil companies on it deeply to spit: when OPEC cuts production and the price of oil increases, Americans are gleefully rubbing their hands and cut the pumps at full capacity.
Second, the OPEC members is, above all, competitors in the oil industry. Still the conflict of interests always led them to one and the same: at first they agreed, then tried to cheat each other quietly, and then loudly argued and started fighting, dropping oil prices.
In fact, the other day this is what happened: first Moscow spat in the face of Riyadh, then he turned to Moscow a back, sides promised to flood the world with oil, and quotes instantly fell to the level of the plinth.
And here we finally got to the actual Russian problems. More precisely — problems. Aside from grandiose-type symptoms in the outflow of capital, firmly standing investment or falling real incomes, it all boils down to one very simple thing: the Russian government is dying.
This does not mean that we will all die, no. But the current system of relations between the citizens of the Russian Federation, regulating cash flow, quickly and irreversibly destroyed.
Still in Russia everything was arranged quite simple: from Russian deposits by a narrow circle of limited people, a list of which is determined Putin, mined minerals and sold to the West. Part of the proceeds stayed, some came into the country. This money is spent on three things:
- to maintain incomes through the expenditure of oil and public sector wages,
- for creation of visibility of economic and political life in the country (national projects),
- for the maintenance of security forces of all stripes and shades.
Private business is either a services or an intermediary between the Chinese manufacturer and the Russian buyer. Everything else is on the level of statistical error.
The current system turned out to be some inherent flaws.
First, it is fundamentally different in its essence from what is declared of the citizens and is described by a set of laws. Accordingly, these laws she needed to break.
And, secondly, to provide at least a minimal level of control in a situation when the laws do not work, the system is forced to rely on the personal loyalty of its members.
The place is smart and honest chooses for themselves “faithful” who must break the law in the interests of the suzerain, and in return the suzerain allows vassals to break it in their personal interests.
This, in turn, creates a predisposition of the system to corruption and incompetence, which drastically reduces its effectiveness: there are many resources devoted to the theft, loss, from inappropriate decisions, the content of the propaganda apparatus and security forces.
These additional costs system of government. Russia compensates for the revenues from mining, and without them in the current configuration is not viable. The oil in this design is the backbone, the main brace, a necessary condition for survival.
It is clear that indefinitely, such a system can not exist due to the objective conflict of interests and lack of civilized mechanisms for their settlement (Parliament, court) long ago invented by democratic societies, over time, the participants occurs to each other a lot of unpleasant questions.
Anyone with an IQ at least a couple of points above the tavern in the garden, it is understood. Who does not understand — he does. Who understands or feels — or pretends to be, or clinically hopeless.
It is interesting that his application for a life presidency, Putin even more destabilized the system. In a situation when key decisions are concentrated in the hands of one person, it is very important to provide for a seamless transfer of this function.
Ideally, if the President something happens, someone very predictable and straightforward (e.g., Vice President) supports a given policy, while in time and for obvious the procedure will not be conducted election, which predictably won by one of the leaders of the major parties with well-known programs.
The minimum acceptable option for authoritarian regimes — there are pre-prepared successor, to whom power is “inherited” through a number of measures to ensure the loyalty of key players (the confirmation, the oath, transfer the folder with dirt, etc.).
In the present situation, no matter what happens with Putin — health problems, an accident, an assassination attempt, “I’m tired, I’m leaving” — starts a struggle for power and the system goes berserk.
Perhaps the “reset” Putin is just another smokescreen to run he’s not going and doesn’t want to be for their environment a “lame duck” that the authorities have not begun to share right now, but essentially it does not change.
All this pushes the Russian establishment to liquidation strategy: the shop is closed, so while you can, you need to grab more and steal away without thinking about long-term consequences.
This gives an additional corruption drive and sweep, the pressure on the economy grows, the investment can not be and speeches, the projects turn into synonymous cut, law enforcers are trying to snatch their share, the people angry and the noose tightens even more.
So in addition to the domestic problems on the economy continue to push sanctions. What we are used to them, does not mean that the economy has adapted and calmly develops further. On the contrary, the sanctions are working perfectly, forcing Russia of high-tech industries and increasing its dependence on commodity exports: even according to official Rosstat data for the last 16 years, the weight of primary industries in GDP has grown in 2 times.
When the coronavirus came to China, affected the provinces, where approximately 90% of the country’s capacity of copper smelting, about 60% of steel-smelting plants and 65% of the refinery. These regions consume more than 60% of electricity in China.
How strong was the blow, now you can judge only by indirect signs: the index of industrial production (PMI) for February has fallen to 35.7% (the lowest value in its history, lower than at the peak of the 2008 crisis), and the emission of CO2 to the atmosphere was reduced by 100 million tons, compared with a seasonal norm, i.e. about a quarter. The power of Siberia stood for “planned preventive maintenance” and supply it stopped.
Evaluation of falling oil demand from different sources vary considerably: Goldman Sachs says about 3 million b/d, one of the largest oil trading company Vitol implies a fall by 2.2 million b/d, and the International energy Agency said modest 0,435 million b/D. However, the IEA, I would in this matter did not trust — they are too closely affiliate with OPEC.
Even if China is a Herculean effort to win completely epidemic on its territory, the coronavirus will continue its March across the planet, slowing business activity in the main trading partners of China — the United States and Western Europe. Because of the quarantine will continue to fall in international traffic volumes, and with them fuel consumption.
This means that the global economic impact of the epidemic will be prolonged, severe and affect the most sensitive for the Russian industry.
And, of course, Russia itself is also a party to the coronavirus will not pass. Have you seen, and how China is a Herculean effort and iron hand stopped the coronavirus, and as a dolt-the Italians staged at the Petri dish from which it spread throughout Europe.
Something tells me that the scenario of the spread of coronavirus in Russia will be more similar to Italian, and delaying the quarantine from-for unwillingness to fail the vote on the amendments to the Constitution dear to us all will cost. This means that there will be a quarantine would cause panic, it will stop companies and the related direct losses.
Now put it all together: a weak, decimated by sanctions, is critically dependent on commodity exports and having a transcendent political risks the economy has come under pressure of global recession, the downward trend of oil, the shock of the collapse of the deal, OPEC+ and the powerful impact of the epidemic of the coronavirus. This is not a “black Swan” and bingo.
In the short term it will cause a drop in oil prices below the equilibrium level at $40-45 and the associated fall of the ruble.
Russia accumulated reserves will go first to maintain the exchange rate to cushion the shock, and then will be directed to support the most “needy” of oil workers, bankers and so on, and through them — offshore.
The course will go to free swim and a good walk up and down, gradually stabiliziruemost in the area of 72-75 R/$.
Oil stabiliziruemost at around $40-45, and it means that the development reserves of the Arctic shelf is repealed and Russia will have to squeeze the remnants of the old depleted fields.
Production volumes and export earnings will fall, demultiplicare GDP — per each lost from oil production, the ruble, GDP will decline by about 1,95 R. the Cost of the consumer basket, on 50% consisting of imports will rise.
Both will lead to a further decline in real incomes 5-15% and growth of social tension in society, tired of the corruption and lawlessness, pissed pension reform and not waiting in the foreseeable future, nothing good.
The epidemic of the coronavirus will end sooner or later, but problems of the Russian economy — no.
In such circumstances, any political excess can cause a chain reaction, and after April 22, the probability of this will only grow. After any mobilization of the voting power ratings are falling — people do not like to feel deceived and raped, and then the irritation superimposed on caused by the crisis and a coronavirus problem.
All of this suggests that the probability of failure of a system is very large, the period of fantastic luck for the Russian government ended in 2021 Russia has all chances to become a very different country.
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