Russian economist calls Moscow’s oil dependency a ‘dead horse’

Anatoly Chubais Russia's former privatization Tsar, Anatoly Chubais, at the St Petersburg International Economic Forum in 2017. Credit:

Russia must move away from oil and reduce its dependence on hydrocarbon prices as it shakes off the coronavirus, said Anatoly Chubais, a former economic minister to Boris Yeltsin who now heads Rusnano, a state-sponsored technology venture.

As one of the few liberal economists from that era still in the Kremlin’s good graces, Chubais told the Russian edition of Forbes magazine that oil was a “dead horse” that Moscow would do well to abandon.

“There’s a famous cowboy saying: When you discover you’re riding a dead horse, the best strategy is to dismount,” he said. “The sooner we start to turn away from this path, the quicker we will remove these strategic risks from the country on a national scale.”

Instead, said Chubais, both in the magazine and a subsequent online lecture to business students, the Russian government must embrace innovations like renewable energy and revise its economy to insulate it from further shocks brought by plummeting hydrocarbon prices.

As coronavirus infections surged through March and April, the price of oil crashed as transportation ground to an abrupt worldwide halt. The nosedive hit Russia, whose economy is heavily dependent on oil prices, especially hard.

The result has been a huge drop in carbon dioxide levels worldwide, prompting many Russian citizens to consider environmentally sustainable solutions to the current crisis, including a robust government response to climate change.

As one of the reformers who painfully pushed Russia toward a market economy in the early 1990s, Chubais is an often-reviled figure, frequently blamed for selling out the country to the oligarchs of that era. But he’s also a canny politician who since his fall from favor helped usher Vladimir Putin to power.

Since then, he has chaired RAO Energy Systems of Russia, the state-owned electric monopoly, which he sought to dismantle and put in private hands. The monolithic company was eventually disbanded in 2008 and broken into dozens of smaller entities.

On the heels of that privatization success, he was appointed to head Rusnano, a company that has been tasked with finding alternatives to Russia’s dependence on fossil fuels. From that vantage point, he has been critical of the Kremlin’s steady reliance on oil.

In his interview to Forbes, he called oil the “backbone” of the Russian economy. Indeed, oil accounts for 20 percent of Russia’s gross domestic product, 40 percent of its budget and 60 percent of its exports.

But falling oil prices, he said, are upsetting that precarious balance, and making Russia’s current state budget – which assumes oil will cost $42.5 a barrel – unstable. But even optimistic projections made since the beginning of the coronavirus crisis don’t expect oil to rise above $40 a barrel for some time. Currently, oil is trading for about $33 a barrel.

This will hollow out Russia’s budget. In March, Alexei Kudrin, who heads the Accounts Chamber, which oversees government spending, said that even if oil reached $35 a barrel, the Russian government would see a $41 billion shortfall before year’s end.