Oil Fever
Yesterday was remarkable for oil world market: price per barrel for Brent oil exceeded USD 42 for the first time in the last 100 days. Brent oil reached its maximal price, i.e. USD 42.31 in ICE (Intercontinental Exchange, Inc.), which is higher by 1.85% from the previous day’s indicator. Last time price for oil was higher than USD 42 on December 7, 2015. Naturally, Russian ruble exchange quickly reacted to oil price growth. Exchange rate for US dollar in Moscow exchange fell to RUB 67.62, which has been the lowest indicator since 4 December, 2015.
Increase in price for oil throughout latest weeks and especially recent few days gave ground to a range of experts anticipating that the world came out of the decline phase of oil price, and currently reverse dynamics may be observed.
The most noteworthy here is Russia’s standpoint. In the period, when everybody were anticipating oil price fall, Russia considered it impossible. Currently, when the price goes up, Russia shows stressed cautiousness. For instance, Central Bank of Russia made a decision in the second half of the day not to change the refinancing rate—11%, conditioning it by the constant threat of reduction in price for oil.
“In making a decision on interest rate, Board of Directors of the Russian bank reckoned on expectations of low price for oil anticipated in December. Against the background of increase in volumes of Iranian oil export and sharpening competition for the share available in the market, excess supply is maintained in oil market. That’s the reason, that some restoration of price for oil throughout recent weeks may bear instable nature. On account of it, on the basis of updated baseline scenario for anticipation Russia’s bank defined average price USD 30 per barrel for 2016,” the official statement reads.
Do you remember what Russia’s officials and first persons in the field of energy were saying in late 2014? For instance, Vladimir Putin, president of Russia, announced in October 2014, if price for oil reduces from USD 80, world economy will record a collapse. Prior to him, head of Rosneft Sechin was announcing in September 2014, that price for oil won’t drop from USD 90 and adding, “USD 90 is also a reasonable price, it allows working.” Then, surely, Sechin revised his anticipations to USD 70-75. And Alexey Ulyukaev, Minister of Economic Development of Russian Federation, was considering fall of price for oil from USD 60 unreal.
That is, Russians learnt their lesson from bitter experience of the past.
By the way, there is a curious coincidence regarding today’s record in oil price. Facebook has a useful function: it reminds your posts of the same day 1 or 2 years ago. And yesterday it reminded a post, which I have done 2 years before—18 March, 2014.
The post referred to the fact that the USA lifted embargo against Japan and 10 EU member countries, regarding purchase of Iranian oil. Corresponding publication on it was in 168.am as well, where upon assessments of some experts it might lead to fall in price for oil, up to USD 40-50 per barrel. Note, at that period price per barrel was over USD 100. On the basis of this, we concluded, if price for oil falls, it’ll be disappointing for Russia, and if it’s disappointing for Russia, it’ll hardly be joyful for Armenia. At that time it seemed a rather pessimistic scenario, however, it’s worth introducing its forthcoming developments.
From mid-2014 price for oil started to drop until USD 53-54 in the end of the year. The decline went on till March 2015, reducing to USD 48. Oil price recorded rise in the period of April-June reaching USD 59-60, after which the decline phase followed.
In January 2016 price per barrel reached USD 30. In recent period, price for the black gold has somewhat been fixed, as per yesterday, it exceeds USD 41, however, as already mentioned, it’s difficult to say, what will come next. Of course, this may not be conditioned by lifting embargo against Japan and 10 EU member countries. However, it’s a fact, that the result was rather disappointing for Russia—depreciation of Russian ruble, deficit, reduction on purchasing capacity, GDP reduction and etc.
How about us? We all memorize the “happy” December of 2014, when we succeeded to hardly overcome the panic with exchange rate of US dollar. Among “happy” implications reduction of money transfers from Russia by USD 0.5 billion, decline of foreign trade turnover, especially in export, and in particular, to Eurasian Economic Union (EEU) member countries and etc may be mentioned. Although, as compared to Russia, where economy decline was recorded in 2015, Armenia’s GDP recorded 3% growth, and we are not having good times though.
The point is, not being an oil exporting country, Armenia is the one dependent from oil. We are deeply dependent form Russia’s economy through money transfers by working migrants. Truly enough, due to decrease in money transfers, the ratio of transfers/GDP has slightly gone down—15%, however, it’s a bothering indicator as well. Regarding dependency from transfers, among CIS member countries, Armenia, perhaps, is back from Tajikistan and Kyrgyzstan.
They say, problems, as they are, are not a good thing, however, they provide the opportunity to draw some conclusions, understand mistakes and correct them. For instance, the 2009 crisis was a lesson for our country, that growth, based solely on construction, isn’t a growth though, and we shouldn’t rely on it.
Just the same way, reduction in transfers and its implications should be a lesson for us, that serious structural changes are needed, which will weaken that dependency. To be more honest, it was being touched upon yet in 2009, before the crisis.
What do we do in this direction? Firstly, we do structural changes and join the Ministry of Regional Administration to the Ministry of Emergency Situations, grounding it by efficiency, and a short period later, again separate it. Or, we join and separate tax and customs bodies, then attach them to the Ministry of Finance, then again separate them. In short, we are busy with the urgent task of delivering positions and political games.
The world is moving on, seeking for new technological solutions. Even Russians confess, that oil era has finished, and it’s worth seriously thinking over new quality economy. And in Armenia the top discussed topics are “strapper” and “cheap junk” uttered by one of MP’s.
Surely, according to official statements, the authorities do their best, even the impossible, to heal economic structure. They develop investment concepts, make legislative amendments and initiate other crucial steps. And, in fact, they “get along with” another period and get ready for the next elections, hoping deep in the heart, that prices for oil will stabilize, and migrants will send as much money as they used to.
By Babken Tunyan
