Oil prices have been falling for a week. This has not happened for almost three years. Brent crude costs almost $65 per barrel – and in July it was $79.3. A slight nervousness has appeared: citizens, having managed to wean themselves off the dollar as the main indicator of the state of the economy, have managed to get used to another indicator – oil prices. A sharp or prolonged drop in prices can cause unnecessary excitement.

But cheaper oil could be good for Russia. And it's not that the state will suddenly start diversifying the economy, as some commentators have begun to say. Rather, it's that conditions for non-oil businesses will improve: inflationary pressure will decrease and the ruble's strengthening will slow.

Finance Minister Alexei Kudrin, who is against the misuse of oil windfalls, will find it easier. His recent proposals to link the budget deficit to GDP and to divide the budget into oil and other budgets were perceived as beautiful abstract exercises. With oil prices falling, the Finance Ministry will receive additional arguments in the long-term (budget methodology) and short-term (passage of the 2007 budget in the Duma): the stabilization fund may be of serious use and it is not worth spending it on trifles.

But the current trend is unlikely to activate the stabilization fund mechanism. Most analysts attribute the fall in prices to the disappearance of geopolitical factors that influenced growth: the worsening situation in the Middle East, hurricanes, and accidents on oil pipelines in the United States. Now the price of oil will be largely determined by fundamental factors (supply and demand), and no significant downward changes are expected in this area. According to forecasts by the International Energy Agency (IEA), by 2010, demand for oil will grow from 82.4 million to 90 million barrels per day, and by 2030 it will reach 121 million barrels. Russia and OPEC countries are capable of increasing production only if there is active investment, which is not happening yet. Russian oil companies have not responded to changes in the global market for a long time, since the state receives all the excess profits.

The budget for 2006 and 2007 was drawn up based on conservative estimates by the Ministry of Economic Development. In the 2007 budget, which plans a significant increase in government spending, the price of oil is planned at $54 per barrel; in subsequent years, according to the Ministry's calculations, it will be even lower: $50 in 2008 and $46 in 2009. It is easy to see that the price of oil has not yet dropped to the figures on which the Russian budget is based.

However, even if oil had fallen significantly – in our case, below $54 per barrel – the apocalypse would not have happened. The very same stabilization fund that officials dream of spending is already capable of fulfilling its direct functions – insuring the economy against fluctuations in oil prices. By the beginning of September, 1.73 trillion rubles had accumulated in it. The non-oil budget deficit (the difference between expenditures and revenues without oil revenues), according to calculations by the Economic Expert Group, was only 1% of GDP (225 billion rubles) in 2005, and 3.7% of GDP (907 billion rubles) in 2006. Judging by the trend toward increasing government spending, the deficit will be even greater in 2007, but since the situation of a complete exclusion of oil revenues is implausible, one can be sure that the stabilization fund will be able to insure the Russian economy in the event of a further fall in oil prices.

Whether high or low energy prices are good or bad for Russia is a philosophical question. The state was unable to forcibly restructure the economy with high oil prices. In the first half of 2006, the share of energy resources in exports exceeded 70%, and according to Deputy Finance Minister Sergei Shatalov, up to 50% of the Russian budget revenues come from oil and gas revenues. It is obvious that the downward price trend for energy resources will automatically reduce the oil dependence of the Russian economy. Let's see what natural diversification will lead to.

From the editor: Oil as a dollar