Introduction 

Russian GDP was 1.6999 trillion US dollars in 2019, according to official data from the World Bank. The country’s GDP represents 1.42 percent of the world economy which ranks Russia as the 11th largest economy in the world. According to International Monetary Fund (IMF), Russian GDP has shrunk by 5.5% as of April 2020, driven by declining energy exports and internal market fluctuations.  

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Russia is not merely the largest country in the world, geographically; it also possesses one of the world’s largest repositories of crude oil, petroleum and other precious metals. Russia is ranked among the world's leading producers of a large number of mineral commodities including some of the largest reserves of diamonds, gold, platinum, palladium, coal and iron ore. Russia is the third largest producer of crude oil in the world, pumping out up to 10.95 million bpd as per. However, despite these rich resources, Russia’s exports lack diversification: about half the value of all Russian exports may be attributed to oil and natural gas exports. Indeed, despite having one of the largest arms industries in world, producing high tech military equipment including air defense systems, combat aircraft, submarines and warships for export, even this industry is dwarfed by oil and gas.

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Unsurprisingly, therefore, the value of the Russian ruble has been historically highly dependent on crude oil prices. For example, in 2014 when oil prices fell, so did the ruble. However, in the wake of sanctions imposed by the US against Russia for its alleged interference in the U.S. presidential election of 2016, the ruble and the oil price were finally decoupled with the ruble suffering massive fluctuations and heightened inflation. 

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Russia as the Largest Energy Supplier to Europe

30% of Europe’s oil and 40% of its natural gas demand is met by Russia. The Russian government owns its oil and gas industries. Gazprom, the state-owned gas company, owns the world’s largest gas reserves and the industries account for the 30% of the state’s total employment. Russia’s economy is therefore highly dependent on the export of oil and petroleum products. It has the strongest backing from the European Union, as the EU cannot afford to lose Russian energy supply. This was evidenced most starkly in 2006, when Russian president, Vladimir Putin cut off gas supply through Ukraine, effectively holding EU gas supply hostage in a bid to charge higher prices. 

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In similar moves, Russia has compelled many foreign energy contractors to increase its share of profit. Historically, it has arbitrarily changed the agreement with ExxonMobil and Royal Dutch Shell, granting license to Russian-owned oil company, Rosneft, to operate in the Exxon mobile area and revoking Shell’s license for the $20 billion LNG project at Sakhalin 2 Island. Similarly, in 2008, using peacekeeping troops in Georgia, Russia took control of one the oil pipelines owned by British Petroleum to force a deal with BP. 

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Despite these bullying tactics, there are very real fears in the EU that Russia’s infrastructure is not sufficient to meet its future needs and the EU has forecasted that an investment of $738 billion is required in 2020 to build additional infrastructure. Failure to scale its infrastructure could represent a very real threat to the Russian economy in future, 

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Russian Economy Determinants

According to most Russia experts, a small circle of powerful oligarchs controls the Russian economy. The most important Russian businesses are owned or managed by these wealthy insiders. Contrary to popular opinion, President Putin does not control the oligarchy but rather mediates their competing interests. It is a system of control which began as early as the 1400s during the expansion of the Grand Duchy of Moscow and has operated successfully through both Czars and the Soviet era.