Falling oil price hurts Russia more than sanctions - media

17:30, 14 October 2014
World
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The current slump in world oil prices could cause more pain to the Russian economy than the sanctions imposed on it by the West for Moscow’s aggression against Ukraine, media report.

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According to the Los Angeles Times, since June, the price of "black gold" on the world markets has fallen by about 20% due to an increase in oil production and the economic slowdown in Asia and Europe. Falling oil prices increase the political and economic pressure on Russia, sanctioned by the West for its annexation of Crimea and its “activities” in the east of Ukraine, the newspaper writes.

The current situation is also a blow to Iran, as Iranian President Hassan Rouhani had promised to improve the situation in that country’s stagnant economy, even in the face of Western sanctions, the newspaper said. In addition, the fall in oil prices weakens Iran's position in negotiations over its nuclear program.

According to some analysts, the decline in prices may be a long-term trend, as the world increasingly turns to technologies that require less fuel, such as electric cars. Another factor may be the development of hydrofracking. Neither should Iran or Russia count on help coming from Saudi Arabia – the world’s second largest oil producer after Russia – as sources close to Riyadh say Saudi Arabia is unfazed by the declining oil price and is willing to put up with a price as low as $80-90 for one to two years.

According to recent media reports, Saudi Arabia has held several private meetings with oil market participants and analysts to clarify its position on lower prices. The politics of the reducing oil price, according to U.S. newspaper the Wall Street Journal, are connected with Iran. Last week, the EU lifted its embargo on purchases of Iranian oil, which had been in place for almost eight years.

In the meantime, Russian budget planners in the government and central bank are bracing for a worst-case scenario of a fall in the price of oil to a mere $60 a barrel. Russia’s budget for the period until 2017 was drawn up based on the assumption that Urals oil prices would average $100 per barrel. But now Russia’s Auditing Chamber has said there is a serious risk that the oil price will be lower than had been expected.

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