Russia is more than twice as large as the 48 states of the continental United States, with an educated population and far more natural wealth than expected in a vast area of 6.6 million square miles. Shouldn’t such a country be the envy of the undisputed superpower of the world? Still, as of October 2020, Russia’s gross domestic product (GDP) is only 11th in the world, according to International Monetary Fund (IMF) figures.
The United States is ranked as the world’s largest economy with a GDP (currently US $ 20.9 trillion) in 2020 of $ 20.9 trillion, while Russia has a nominal GDP of $ 1.5 trillion. When it comes to GDP, Russia lags behind much smaller countries such as the United Kingdom, Italy and France. This is much lower than national inputs indicate, such as literacy levels and access to capital. So how does Russia make money, and why can’t it make more?
- In terms of gross domestic product (GDP), Russia is chasing a much smaller country with a nominal GDP of $ 1.5 trillion in 2020.
- Russia’s economy relies on oil and natural gas exports, both under the control of the Russian government.
- This lack of economic diversification puts Russia at a disadvantage when demand for energy products plummets, which shrinks Russia’s economy.
Dissolution of the Soviet Union
Since the dissolution of the Soviet Union in 1991, the Russian economy is far superior to most of the other 14 small republics of the former Soviet Union. The western-friendly Baltic states of Latvia, Estonia and Lithuania are now tightly detained as full members of the European Union and are far more economically viable. Russia’s economy, on the other hand, is primarily based on extracting resources from the earth and has not been converted into general wealth that is important to the 144 million citizens.
Officially, Russia abandoned communism decades ago. Post-Soviet Russia enjoys a market economy on the surface, but its leaders consider it too important to leave its dominant energy sector to the whims of independent buyers and sellers. .. Oil, natural gas, electricity, etc. are effectively under the control of the federal government.
For example, the Russian government owns more than half of Gazprom, the world’s largest natural gas extractor. The listed company is the successor to the Ministry of Economy, Trade and Industry of the Soviet Union. Every 6 cubic feet of natural gas on this planet is processed in favor of Gazprom. Gazprom is chaired by Victor Zubkov, the former Prime Minister of Russia.
Russian government manages energy
Regardless of the energy source, the Russian government controls it, resulting in enormous benefits to the oligarchy of the country. For example, the state-owned inter-unified power company, the country’s leading power company, is owned by a consortium of state-owned enterprises. The idea that energy extraction and refining is open to the private sector is more common in the United States, but not in Russia.
Russia’s oil production is comparable to natural gas production. As of 2020, the country is the third largest oil producer in the world after the United States and Saudi Arabia. By 2020, the country accounted for 11% of the world’s total oil production.
The largest of these include Rosneft (LSE: ROSN), Lukoil (LSE: LKOD), and Srugutneftegas. (LSE: SGGD). All three are traded on the London Stock Exchange (LSE), but Rosneft is 70% owned by the Russian government. To interpret the sometimes complex logic behind how the Russian energy industry and its major players operate, we need to look at its ultimate major owner, the Russian government.
Russian politics and economy
The majority of political parties in Russian politics are United Russia, founded by President Vladimir Putin and occupying most of the seats in both the parliament and the state legislature. Officially, according to official party documents, United Russia is trying to overcome the “economic recession” and is sometimes referred to as “going to Russia.” The document describes this backwardness as “addiction to survive from raw material exports” and “certainty that all problems must be resolved by the state,” both inconsistent with real-world activity. And it seems.
Not to mention the former territory, it is not surprising that the Kremlin takes advantage of the opportunity to invade a weak neighbor that was once part of the Soviet Union, with a political class that vowed to regain its former position. is not. 2008 was Georgia. In 2014, it was a bigger award: Ukraine.
These aggressions came at a great economic cost to Russia. After the 2014 invasion of Ukraine, the United States and other countries have imposed economic sanctions on Russia. Increased geopolitical tensions have weakened investor demand for Russian investment. In addition to these factors, high inflation in late 2014 and a sharp fall in oil prices caused the Russian economy to shrink 3.7% by the end of 2015.
The economies of large powers cannot adapt accurately to change if the economy is so uniform that two-thirds of its exports are oil or distillates. For Russia, this became even more apparent in early 2020, the global financial crisis. The country has further reduced demand for oil and gas exports as a result of the quarantine and Saudi Arabia’s oil price war. Russia’s manufacturing industry was also hit as economic conditions deteriorated, and in April 2020 the sector reported the sharpest decline in more than a decade.
Given the essentially one-note export business that operates at the mercy of global price fluctuations, the paradox is that Russia leaves little opportunity to run a company unaffected by the government. .. It’s all in a country that is more likely to be alive than everyone else wants.