The Russian president Vladimir Putin warned today that it could take the country two years to emerge from its current crisis.
Given that Russia’s currency crisis has been driven to a large degree by the fall in the global oil price, two more years of Russian pain implies the oil price will not rise over that time.
The Russian central bank has already warned that if the global oil price remains at $60 a barrel GDP growth will collapse next year, with output falling by 4.5 per cent and by a further 0.9 per cent in 2016.
But the impact of oil prices at that level for the West are beneficial.
Falling global oil prices have already helped to deliver the lowest inflation in the UK in 12 years. It has also pushed down prices in the US:
This easing of the cost of living is boosting disposable incomes and spending.
Christine Lagarde, the director general of the International Monetary Fund, has said a 30 per cent fall in the global oil price will mean an extra 0.8 per cent of GDP growth for oil-importing advanced countries, including Britain, next year:
Yet it’s not all good news. Falling oil prices are helping to push the eurozone towards deflation:
If prices actually fall in the eurozone it will probably have a negative impact on growth by making it more difficult for households and firms to service their debts and by encouraging households to put off buying goods in the expectation of lower prices in future.
Falling energy prices will also make it uneconomical for oil firms to invest and develop the UK’s North Sea oil supplies further, meaning UK oil output will likely continue its rapid fall:
This will have push down UK oil tax revenues, making it harder for the next Chancellor to reduce the country’s budget deficit.
There was also a thinly veiled threat for the European Union from President Putin today: “Do they [the EU] want a stable, guaranteed supply of energy resources from Russia that they desperately need? If they don't want it, well, then it's not going to happen. There are no other energy sources other than from Russia.”
How serious is this? Putin is certainly right that the Europe is heavily reliant on Russian gas. The country provided 23 provided of supplies in 2012, according to Eurogas:
And Russia has a history over the past decades of turning off the gas export taps to punish neighbours, such as in Ukraine.
However, those punitive actions took place when global energy prices were high and Russia could easily afford to take the short-term financial hit.
If Putin cut off gas supplies from Europe in the present environment, while he would hurt Europe economically, such an action would almost certainly cause Russia more financial pain.Reuse content