In the second half of 2014, Americans are celebrating plummeting prices for oil and gas. Cheap oil has an effect similar to a tax cut for the country that buys most of their oil from abroad and citizens, who count gasoline as a major monthly expenses. However, in Russia, lower oil prices have a significant impact.
Net importers will benefit from lower oil prices
Some countries thrive when oil prices decline economically and suffer when they are raised, while the reverse is true for others. The country, whose economy wins when the price of oil low, as a rule, are net importers of oil, meaning they import more than it exports. Low price is preferable to buy more than they sell. Most of the countries, experience the tangible benefits of cheap oil are developed countries with high energy needs.
In the US, for example, exports a tiny amount of oil compared to what it imports, and Americans consume more oil than people in any other country. As a consequence, the U.S. economy benefits from cheap oil and gas. The decrease in import prices to ease the burden on the Federal budget, while the Americans enjoy greater purchasing power, because less of their income is spent on gas.
But net exporters suffer when the price of oil will fall
The price of oil and Russia’s economy have feedback. When the price of oil falls, Russia suffers greatly. Oil and gas, which account for more than 60% of Russian exports and provide more than 30% of the gross domestic product (GDP). The effect of the fall in oil prices in 2014 the Russian economy was swift and devastating. In the period from June to December 2014, the Russian ruble fell in price by 59% relative to the U.S. dollar. In early 2015, Russia, along with neighboring Ukraine, was the lowest in purchasing power parity (PPP) relative to United States to anywhere in the world. The decrease in PPP lowers the standard of living, as goods purchased using the national currency becomes more expensive than they should be. In addition, Russia is receiving less economic benefit from lower prices on gasoline than in the US, and the Russians use much less oil and gas than Americans. Less than 30% of the volume of oil production in Russia is preserved for domestic use while the remainder is exported.
Oil prices also have an impact on the import to Russia, as it was in 2014. Because the country is a net importer of almost everything, except oil and vodka, the sharp rise in prices for imported goods caused by the fall of the ruble against major inflation, which the Russian government tried to dampen by raising interest rates as high as 17%. In the United States discovered in the early 1980s, a sudden and significant increase in interest rates could trigger a deep recession.
Fending off the dual threats of a sharp economic slowdown and galloping inflation is a weak proposition for politicians in any country; for Russia it is a sad reality when the price of oil to decline.