Russians' anxiety swells as oil prices collapse

The change is daunting for Russia, which relies on energy exports for 50 per cent of its federal budget
Last Updated 27 January 2016, 17:58 IST

Last year was bad enough financially for Sergei and Victoria Titov, both music teachers getting along in years. Her government salary was slashed by one third, and rampant inflation put some basic groceries like eggplant and cucumbers out of reach.


Then came January 1, and the abrupt decision by the regional government here in Krasnodar, the capital of Russia’s southern agricultural heartland, to chop transportation subsidies for older Russians, forcing the couple to limit their trolley rides.

Indignant and fearing worse amid Russia’s accelerating economic problems, Sergei joined an unauthorised demonstration last week by hundreds of older Russians who gathered under the bronze statue of a Cossack horseman on the main square here and chanted, “Return our benefits!”

The older Russians were not alone, neither in Krasnodar nor across this vast nation, where illegal protests and wildcat strikes are erupting with increasing frequency by truckers, teachers, factory workers and all sorts of Russians facing steep government cutbacks because of plummeting revenue from oil and gas.

The global collapse in oil prices is reordering economic relations around the world, but the change is particularly daunting for Russia, which relies on energy exports for 50 per cent of its federal budget. 

In December, President Vladimir Putin told the nation that the worst of the recession — the economy shrank 3.9 per cent and inflation hit 12.9 per cent in 2015 — was over and that modest growth would return in 2016. He has been pushing the oil collapse as an “opportunity” that will wean Russia off energy imports and diversity the economy.
Then in January oil fell through the psychologically important floor of $30 per barrel, with no bottom in sight, and the ruble hit a record low of nearly 85 to the dollar before recovering slightly. The last time oil prices dropped so low and stayed there, in the 1980s, the Soviet Union disintegrated.

Steadily rising prices since 2000 have lifted Russia out of poverty and economic chaos, buoying the prosperity of many Russians with it. Putin was lucky enough to be president for much of that period, but he now faces an extended decline, with real incomes shrinking.

With the federal budget approved in December based on oil at $50 a barrel, Anton Siluanov, the finance minister, announced that the country faced a budget deficit of about $40 billion, and ministries were ordered to cut spending 10 per cent. Budgets were similarly guillotined last year.

In Krasnodar, Titov, 64, braced for harder times. “I do not know what they will cut, but I know it will affect us,” he said. “We are watching all this with alarm. It is clear that the government lacks the necessary resources to give us a normal life.”

In Krasnodar, a city of about 800,000 people, retirees register a kind of sticker shock when discussing food prices, yelling out items as they remember newly high prices. “Apples!” one shouted, noting that the cost had nearly doubled. Then “Zucchini!” and “Smoked sausages!”

Food prices rose 20 per cent last year, according to official statistics, but often Russians say their grocery tab is up by a third or more, thanks in part to sanctions Moscow slapped on Western food imports in retaliation for sanctions the West imposed over Ukraine.
Sergei Galustian, 65, a retired police officer, lives on a downtown street with just 27 houses, their proximity making it easy to assess change. “Nobody is starving yet, but incomes are definitely down,” he said, noting that homes are colder, that neighbours turn on just two lamps after dark where they once used five and that people have stopped buying new clothes.

Retail sales across Russia were down by 13.1 per cent for the year ending in November, according to official statistics, with car sales off nearly 40 per cent.

The giant Seydin Machine Tool Factory was the pride of the city during the Soviet era, churning out production lines for dozens of countries. Now even domestic orders have dried up.

The plant’s 100 or so workers have not seen a paycheck for a year and recently received layoff notices. They, too, have on occasion gathered in the main square to demand their back pay. The workers “have to take to the streets!” they wrote in an open letter to Putin.

In a tradition dating from Soviet times, most firms, and especially state-run companies, tend to cut hours or stop paying salaries rather than fire people to diminish the chances for social unrest. As a result, employees across Russia are owed $50 million or more in unpaid wages, according to the Federal State Statistics Service.

In Moscow on Wednesday, about 15 employees of Sbarro, the pizza chain based in Ohio, stood in the brutal cold outside one franchise holding signs saying, “Give us our money.” Several said they had not been paid for at least three months. “They just tell us they have problems,” said Sergei Yudichev, 50, a driver for the chain for more than two years.

The plan ahead
Russia pumped record amounts of oil last year, nearly 11 million barrels per day, but that pace will not save it in the current global glut. The main government strategy so far seems to be to cut spending and to rely on its reserves until oil prices improve.

Russia has around $360 billion in foreign currency reserves and $120 billion in two rainy day funds, down from just under $160 billion a year ago. At current spending rates, however, the two funds are expected to last only 18 mo-nths. It might also sell significant stakes in state-run companies like the oil giant Rosneft or Sberbank, and it will not increase military spending.

Titov, a veteran organiser for the Communist Party, said he felt the economic problems were contributing to a corrosive sense of drift. “Russia always lived with some manner of national idea, a goal: We were building socialism and communism,” he said. “But there is no national idea. Now, we just go with the flow and it is not clear in what direction.”
Many analysts expect people to do what Russians always do in hard times — hunker down, tend to their vegetable plots and wait it out. Others say that Russians have gotten used to a higher standard of living and that they will protest losing it.

The government allows street protests over issues like lost wages, but its distinctly authoritarian edge emerges in the face of political action. So far, local governments have reacted lightly to the protests. The governor of Krasno-dar Region restored transportation passes for the older Russians receiving the lowest pensions.

Some residents, like Titov, groused that the wealth is being wasted on prestige projects ra-ther than helping ordinary people. Still, he does not expect Russians to sour on Putin any time soon. In nearby Sochi, Russia spent around $50 billion to host the 2014 Winter Olympics, and a similar construction juggernaut is building stadiums nationwide for the 2018 World Cup.

“The Russian people got what they wanted, a czar ruling the country,” he said of Putin. “What we need is an effective manager, but what we got is the Olympics, soccer and war.”

(Published 27 January 2016, 17:58 IST)

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