Russia's unhealthy addiction to oil shows no signs of stopping

Under President Putin's leadership the Russian economy has grown and has become more prosperous. But Russia's economy still has a major problem - an over reliance on oil. In fact, petroleum products, including oil and natural gas, account for around 50% of Russia's exports and  oil and gas accounted for slightly more than 35% of the Russian government's revenues during 2017. Russia also has some of the largest oil reserves, around 80,000 million, and exports oil to several countries including China and several countries in Europe. However, Russia's dependency on oil has created several economic problems, including recession and major economic hardship.

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During 2014, when oil prices dropped, the Russian ruble decline in value by 59%. Russia's purchasing power parity (an economic measure to compare different countries' currencies through a "basket of goods") also declined. Since Russia is a major importer of everything except oil and vodka, the reduction in the value of the ruble led to Russia's imports increasing in price, leading to major inflation.

Although Russia has some of the largest oil reserves, relying too much on oil is what led to a recession in 2014. It's common knowledge that its best for the economies of countries to be diversified. If a country's exports are largely based on one product then that means the country's economy will be more susceptible to economic hardship when supply or demand of the product decreases.

President Vladimir Putin and other Russian leaders must find ways to reduce their economic dependency on oil and should search for other products to export. Since the adoption of renewable energy could lead to a reduction in the demand for gas and oil, increased use of renewable energy may also hurt Russia's economy.

So far President Putin has opted to not reform Russia's dependence on oil and has instead made efforts to increase Russia's oil supply by getting oil from the middle east. However, if President Putin does not want a repeat of Russia's 2014 recession then his government needs to come up with a plan to export other goods and services and lower their reliance on oil. If the Russian government does not find a way to decrease their dependence on oil then it is only a matter of time until oil prices drop and Russia goes into another recession.

*Updated August 22, 2018 4:45 PM EST

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