Not to feed the horse

“Analysts Predict Oil Prices to Fall for 19th Week in a Row”—reading a headline like this makes it difficult to take analysts seriously. Even if these are analysts who are interviewed by Bloomberg, a highly respected agency in the business world. Over these same 19 weeks, a barrel (barrel) of oil has risen in price by at least a third, first exceeding 100 and then 125 dollars. It turns out that this is not the limit. One of the most radical forecasts was made by the investment bank Goldman Sachs: according to its analysts, by the end of the year, quotes could soar to $150-200, and the bank raised its average price forecast for the second half of the year from $107 to $141.

It would probably be interesting to understand the reasons and prospects for the continuation of the rapid rise in prices for oil and other raw materials, but too much has already been written about this. And about the “extra” money that is looking for an investment object that protects against inflation; and about the growing, despite everything, demand from China and other developing countries; and about the global “revaluation of values”, during which money begins to play an ever-less role and represent less and less value.

It is much more interesting and, most importantly, more useful to try to understand what impact these abnormally high (and continuing to rise) oil prices have on Russian reality. At first glance, it’s stupid to complain - “too high” prices are still better than too low. And the Russian economy of 2008, at $125 per barrel, looks much more attractive than the Russian economy of 1998, when a barrel cost $12. And, nevertheless, the rise in oil prices in the current circumstances for the country is more of a problem than a benefit. The Russian economy is showing all signs of overheating. One of the most characteristic symptoms is accelerating inflation. While the economy was recovering, high growth rates were possible by loading existing capacities and by creating jobs for new workers not involved in creating GDP. However, everything has its natural limits, and free capacity, labor resources and infrastructure reserves are running out. Each new dollar received by the Russian economy does not stimulate it, but only increases inflationary pressure or increases the exchange rate of the ruble, which negatively affects the competitiveness of Russian producers of goods and services. More and more goods are becoming more profitable to import than to produce within the country. And all this despite an ongoing consumer boom, which is fueled by high inflation, making savings economically meaningless. But imports are also limited by the capacity of ports, roads and railways, which means that cheap imported goods are crowded out by more expensive ones, which puts additional inflationary pressure.

Each new investment project only increases the already high competition for access to electricity, transport infrastructure, and qualified personnel. Which ultimately leads to a constant increase in the cost of projects and a decrease in their potential profitability. The economy needs a respite, during which effective growth is possible in the service sector, and in industry - mainly due to increased labor productivity and the introduction of energy-saving technologies. During this time, new capacities would appear in the electric power industry (fortunately, the industry is practically privatized) and water supply, railways and roads. However, high oil prices, as well as the state’s “investment itch” that began not so long ago, will not give the economy this respite. Maintaining high growth rates at any cost seems to be becoming the main ideological goal of the current government. This means a further acceleration of inflation and a decrease in competitiveness, which will end badly, even if oil prices simply stabilize.