Russia relies heavily on oil exports to fund its economy and military. Here are the key points:
- Oil and gas sales bring in most of Russia’s revenue
- High oil prices help Russia pay for its war in Ukraine
- But Western sanctions and economic issues threaten this oil money
Can the Russian government keep profiting from oil to support its war efforts? Let’s take a closer look.
How Russia Uses Oil Money for War
Russia’s biggest money maker is selling oil and natural gas to other countries. Right now, those oil profits are helping fund Russia’s invasion of Ukraine.
The Russian government has been using billions from oil exports to cover huge military costs like:
- Paying Russian troops and buying weapons
- Replacing equipment lost or damaged in battles
- Supporting Ukraine regions its forces have occupied
Some experts call this ‘military Keynesianism’ – the government pumps lots of money into the war effort to grow the economy in the short-term. However, this growth isn’t sustainable long-term.
Why Oil Prices Matter for Russia
For the Russian economy to stay stable, oil prices worldwide need to remain high – around $80 per barrel or more. If prices dropped to $30 or $40 per barrel, Russia would quickly run out of money to cover its bills and military spending.
In fact, low oil prices were one reason the Soviet Union collapsed back in the 1980s. Saudi Arabia flooded the market then, crashing prices to around $12 per barrel. The Soviet economic system crumbled because it relied so heavily on expensive oil.
America’s Oil Production Matters Too
Another way to impact Russia’s oil profits would be for the United States to ramp up its own domestic oil production. More U.S. oil supply could help push global prices down.
The U.S. already exports huge amounts of oil and natural gas extracted through fracking. However, this fracked oil has higher production costs than Russian oil from traditional drilling. If prices fell too low, the U.S. fracking industry could struggle to make a profit.
So while boosting U.S. production seems like it could hurt Russia economically, it’s a tricky balance. America doesn’t want oil prices to get so low that it damages its own energy businesses.
Long-Term Impacts on Russia’s Economy
While Russia is currently using oil money to sustain the war, the long-term economic impacts could be devastating:
- Russia has been cut off from international investment and financing
- Foreign companies and expertise have left, hindering future growth
- Around 1 million skilled, educated workers have fled the country
- The banking system faces isolation from Western markets
Over time, these factors could severely limit Russia’s development in strategic areas like modernizing its aging oil and gas industries. Right now though, oil exports are allowing the government to handle the costs of invasion.
Future Threats to Putin’s Power
For Putin to potentially lose power, several key events need to happen according to history:
- A severe, visible economic crisis
- The Russian government becomes deeply discredited
- A clear alternative leader emerges to replace Putin
Currently, none of those three factors are in play. The Russian public largely remains unaffected and seems to be in denial about the economic toll of war so far.
But how long can Putin keep relying on oil profits to sustain this bloody conflict? Only time will tell if the Russian people’s patience runs out.
