Russia and the Depression that Wasn’t

Nearly every other day brings another scary headline about Russia’s economic apocalypse. Inflation is robbing Russians of buying power and Putin propagandists are denying it. The “wheels are coming off” the regime according to our friends at the RFERL, the end of the regime is nigh according to Bill Browder, and Putin’s days are numbered, at least in the creative imagination of Ukrainian nationalist academic Alexander Motyl.

Masha Gessen’s friends can no longer get their little Gruyères, the “legendary” (primarily for losing his clients’ money) Moscow investor Slava Rabinovich is predicting food shortages, and things are only about to get worse with oil falling to $25 per barrel and the ruble to 125/$1, at least according to the Khodorkovsky-funded Interpret Mag’s Paul Goble, who has made something of a professional career forecasting Russia’s takeover by Muslims and the Chinese.

Ambrose Evans-Pritchard, the guy who has predicted all twelve of China’s past zero recessions amongst other forecasting accomplishments, says that Russia is “in a full-blown depression.”

One would think from all the noise that we are looking at some sort of Greece-like depression, or an imminent rerun of the collapse of the post-Soviet economy in the 1990s.

Now for the rather banal reality. Real GDP is expected to contract by around 2.7% this year according to the World Bank, but then recover to 0.7% in 2016 and 2.5% in 2017.

The reasons behind this are likewise pretty banal. They don’t have a great deal to do with Western sanctions, which hurt the ability of Russian companies to raise capital but otherwise have had little bite, and they have even less to do with any particular feature of Russia’s political system/kleptocracy/lack of economic freedoms that both anti-Russian establishment pundits like Ariel Cohen and pro-Western liberals in Russia like former Finance Minister Alexey Kudrin like to claim as dooming it to economic stagnation. If they were right, then East-Central Europe – most of which is rated as a lot economically freer and less corrupt than Russia on the various indices that proclaim to measure such – would not also have been stuck in a relative economic rut since around 2007.

No, the reason for Russia’s recession is quite simple and boils down to the sharp collapse in oil prices from ~$100 in 2014 to ~$50 this year.

Though the Russian economy is about far more than just oil – natural resource rents are 18% of GDP – it is true that oil is the key component of Russia’s export basket. So when oil prices collapse, in the absence of massive and unsustainable interventions, the ruble devalues. This is indeed what happened. Imports went down, goods became more expensive, and inflation rose.  The Central Bank jacked up interest rates in order to prevent runaway inflation, but at the price of a decline in aggregate demand and consequently a short-run decrease in the GDP. If one is really searching for a comparison, the correct one would be not to Greece (which is locked in a monetary straitjacket by the ECB) nor to the late Soviet Union (wholly irrelevant) but to the Volcker recession in the early 1980s US.

Sergey Zhuravlev's permanent oil shock model. Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

Sergey Zhuravlev’s permanent oil shock model (click to enlarge). Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

There is now a very substantial output gap. Dependence on Western credit is now much reduced relative to 2013, to say nothing of 2007. Meanwhile, there are active and serious efforts to develop Russia’s own financial system, which remains woefully underdeveloped for an economy of its size and scope.

Finally, even if oil prices drop permanently to $50 – which is entirely possible, given the removal of the Iran sanctions, this would not mean the Russian economy would be necessarily doomed to years of stagnation. To the contrary, econometric modeling by Russian economist Sergey Zhuravlev indicates that it would result in a ~1.5 year recession (which began in mid-2013, versus 2012 in his model; but otherwise it remains very relevant) followed by accelerated GDP growth thanks to exports.

Otherwise, macroeconomic indicators remain unremarkable. Corporate debt repayments scheduled for the second half of the year are twice lower than in the first half. The budget deficit is forecast to be 3-4% of GDP for the year and overall state debt levels continue to be very low. (Incidentally, this figure is 20% for Saudi Arabia. Which should put the nail in the coffin of the idiotic conspiracy theory that the fall in oil prices has been orchestrated by them and the US to undermine Russia).


Unemployment in Russia (Trading Economics).

Unemployment has barely budged, not even reaching 6% at its peak. In comparison, it was at 10% throughout much of the 1990s. This is almost entirely an output recession.

Now inevitably when recessions occur, living standards tend to fall, and people have to live more frugally. Reading the Western media, one would think that the recession has led to a tsunami in worker protests, criminality, and elite intrigues against Putin.

But in statistical terms, the real impacts of the downturn have been modest. According to Levada opinion polls, the percentage of people having difficulty buying food and clothing increased to 32% this year from 21% in 2014, but this is still lower than the figure for (pre-crisis) 2012, when it was at 33%, to say nothing of the early 2000s (higher than 50%) or the 1990s (around 80%). The percentage of Russians who spend either “almost all” or “two thirds” of their incomes on food, another measure of poverty, is 26% this year, completely unchanged from 2014, and actually lower than in 2013 (33%) or the 2000s in general (40%-50%), to again say nothing of the 1990s (consistently around 80%). These numbers have been confirmed credible by observers such as Russia Insider’s Gilbert Doctorow and Alexander Mercouris, who have personally assessed the situation on the ground, in stark contrast to the New York Times’ Masha Gessen’s reliance on her “Je suis fromage” liberal Russian friend.

Index of "protest potential" based on percentage of Russians saying they'd be willing to partake in protests.

Index of “protest potential” based on percentage of Russians saying they’d be willing to partake in protests.

It is deeply unfashionable to say this but Russian living standards have improved astronomically in the 15 years of Putin’s rule – more so than the headline GDP figures. As such, even a recession like the current one only kicks living standards back by one or two years.

As such, it is not surprising – if deeply disappointing to the Western elites who want to stir up a color revolution in Russia – that Russia’s level of “protest potential” (the percentage of Russians saying they would be willing to participate in protests, or rating the likelihood of protests as being high) is currently near record lows.

Naturally, any such attempts to put the effects of an ultimately modest ~3% drop in GDP into statistical perspective will be met with accusations of callous indifferent to the plight of the Russian people, and the work of Olgino trolls to boot. I have seen this replayed numerous times on the Internet, even when the people making such arguments were Russians living in Russians, whose only sin was to recount their own (generally modest) experiences and impressions of the recession.

Make no mistake – there is a well coordinated media effort in the West to leverage any Russian economic problems to destabilize the Kremlin. Note the chorus of condemnation around the destruction of food illegally imported from the EU in contravention of Russian sanctions, even though the destruction of excess food is routine under the EU’s Common Agricultural Policy.

Naturally, this is driven by their altruistic and heartfelt commitment to the wellbeing of the Russian people. Though isn’t it just a wee bit strange that those journalists and “activists” who tend to shout loudest about the burning of European food also tended to be the ones who maintained the thickest silence about the burning of Russian people in Odessa in the new European Ukraine.

Anatoly Karlin is a transhumanist interested in psychometrics, life extension, UBI, crypto/network states, X risks, and ushering in the Biosingularity.


Inventor of Idiot’s Limbo, the Katechon Hypothesis, and Elite Human Capital.


Apart from writing booksreviewstravel writing, and sundry blogging, I Tweet at @powerfultakes and run a Substack newsletter.


  1. Which should put the nail in the coffin of the idiotic conspiracy theory that the fall in oil prices has been orchestrated by them and the US to undermine Russia).

    Why do you think the oil prices have fallen? It happened quite a bit before the Iran deal.

  2. Anatoly Karlin says

    The oil price is primarily a function of supply/demand in the oil markets, and of dollar strength (because oil is priced in dollars).

    The dollar has greatly strengthened since mid-2014, coinciding neatly with the drop in oil prices.

    I don’t know enough about supply/demand to comment with any authority, but I imagine that the relative slowdown in Chinese growth must have played some part.

    In short: You don’t need tall conspiracy theories of Saudi/US collusion on oil prices to bring Russia down to explain it. You can encounter such theories quite frequently on the Internet. But this wasn’t the case in the 1980s and it is even more implausible now.

  3. It doesn’t have to be people doing Russia down for the sake of it. It could easily be their real impressions.

    10 years ago I met no Russians when I visited Thailand. This year, after their recession started, I saw signs in Russian everywhere but, as the locals confirmed, what had become many had now stopped coming.

    If I hadn’t been there ten years ago I would have assumed that Russia was in free fall.

    If I didn’t read you I would assume that Russia is falling back to 1990’s levels.

    In neither case would I be ill-intentioned.

    As it is, I recognise that effects at the margins are often disproportionately strong, and holidays in Thailand are very marginal spending.

  4. Statements like these pose question, however

    The general idea wouldn’t have been to undermine Russia in particular, but all big competitors, Russia, US shale, future Iranian production for market share considerations, and not merely geopolitics.

    Some people think Saudis have been ill-advised on this, having possibly been played by deliberately wrong advice

  5. “it is true that oil is the key component of Russia’s export basket.”

    This is a serious understatement. “crude oil, petroleum products, and natural gas accounting for 68 percent” of Russian exports. Add minerals and timber and it reaches 80%. The Russian economy is almost completely dependent on resources. There is room between the collapse propaganda of the West and your Pollyannish views. Russia will face more than a mild recession. There’s going to be years of declining living standards. The currency has depreciated further in the past 2 months and there will be a new round of inflation.

  6. anonymous1 says

    There’s been all these reports on how the Russians are collapsing, or are about to, along with news of the Greek situation and how they’re also on the skids. What seems to be implied in all these news stories is that there’s something deficient in the national character of these nations which inevitably leads them to bankruptcy. For example, we’ve been awash in negative characterizations of the Greeks as being lazy, inefficient, prone to living high on the hog and above their means, evasive, wanting the good life, etc. At some point a light bulb went off in my head: the US debt is now $18T, a sum that many say can’t ever be paid off. Why are we talking about Russians and Greeks when we’ve been racking up this gargantuan debt ourselves? When do we arrive at our own Greek moment of insolvency?

  7. Seamus Padraig says

    Incidentally, this figure is 20% for Saudi Arabia. Which should put the nail in the coffin of the idiotic conspiracy theory that the fall in oil prices has been orchestrated by them and the US to undermine Russia

    You and Mercouris seem very convinced in this view; me–not so much. To be sure, I think KSA’s number-one target is Iran. But they would also have some motive to put pressure on Moscow because of Putin’s support for Syria.

    One way or another, destroying US fracking would not–from an economic standpoint–be a very high priority for them. US shale is not a realistic competitor to Saudi light sweet crude. It’s more expensive to extract and there’s no way to get it to the eastern hemisphere except by tanker, which is very slow, dangerous (Valdez) and expensive. Anyway, the US doesn’t even have enough to share. We still import about a third of our own hydrocarbons. Still, the Saudis would want at least a tacit OK from Washington, since fracking would definitely take a serious hit financially. So I’m sure there’s some co-operation here btwn. the US and KSA.

  8. What understatement?
    Key component is a good term and far more correct than your “Russian economy is almost completely dependent on resources” which tries wrongly to suggest that Russia’s export = economy.

  9. Wizard of Oz says

    I agree but was about to add reference to Saudi Arabia and fracking as others have. Obviously Saudi crude will be much cheaper to extract than the product of fracking for the forseeable future but that doesn’t mean that it isn’t in Saudi interests to set the fracking back (and discourage Iranian production) and to be able to benefit from even higher profits when the price rises and others are still gearing up. This seems to be roughly the same strategy as RIO’s and BHP-Billiton’s in iron ore production where they are the lowest cost producers and continuing to ramp up production while other producers go under.

    As to whether the US would have given Saudis the nod and that this was necessary, it is hard to imagine the US wouldn’t have had Treasury and other models of the effects of unrestrained Saudi production. Maybe in the end the conclusion was that the ultimate effects were impossible to predict but that, in the short term at least low oil prices would be good for the US, EU, China and India so…. what’s not to like?

  10. The Saudis are still the swing producers and set the oil price. The recent decline is due to US prodding of the Saudis to lower price in order to put pressure on Russia. The same thing was done in the 80s to put pressure on the Soviets.

    The Saudis are the ‘supplier of last resort’/swing producer. Every day the world buys all the crude the other producers sell to the highest bidder and then go to the Saudis for the last 9-10 million barrels that are getting consumed. They either pay the Saudis price or shut the lights off, rendering the Saudis price setter/swing producer.

    Specifically, the Saudis don’t sell at spot price in the market place, but instead simply post prices for their customers/refiners and let them buy all they want at those prices.

    And most recently the prices they have posted have been fixed spreads from various benchmarks, like Brent.

    Saudi spread pricing works like this:
    Assume, for purposes of illustration, Saudi crude would sell at a discount of $1 vs Brent (due to higher refining costs etc.) if they let ‘the market’ decide the spread by selling a specific quantity at ‘market prices’/to the highest bidder. Instead, however, they announce they will sell at a $2 discount to Brent and let the refiners buy all they want.

    So what happens?

    The answer first- this sets a downward price spiral in motion. Refiners see the lower price available from the Saudis and lower the price they are willing to pay everyone else. And everyone else is a ‘price taker’ selling to the highest bidder, which is now $1 lower than ‘indifference levels’. When the other suppliers sell $1 lower than before the Saudi price cut/larger discount of $1, the Brent price drops by $1. Saudi crude is then available for $1 less than before, as the $2 discount remains in place. Etc. etc. with no end until either:
    1) The Saudis change the discount/raise their price
    2) Physical demand goes up beyond the Saudis capacity to increase production

    And setting the spread north of ‘neutral’ causes prices to rise, etc.

    Bottom line is the Saudis set price, and have engineered the latest decline. There was no shift in net global supply/demand as evidenced by Saudi output remaining relatively stable throughout.

  11. silviosilver says

    10 years ago I met no Russians when I visited Thailand. This year, after their recession started, I saw signs in Russian everywhere but, as the locals confirmed, what had become many had now stopped coming.

    I was in Thailand in 2006 and 2008 and I recall hearing Russian spoken about as often as French. (Germans were by far the most numerous non-English speakers I encountered.)

  12. Priss Factor says

    “Though isn’t it just a wee bit strange that those journalists and “activists” who tend to shout loudest about the burning of European food also tended to be the ones who maintained the thickest silence about the burning of Russian people in Odessa in the new European Ukraine.”

    Jews hate, hate, and hate Russians.

    We are all Palestinians.

  13. [There was no shift in net global supply/demand]

    Utter stupidity. Over the last couple of years US oil production has risen sharply while the Chinese economy has gone from epic boom to bust. Got any other gurus to quote? I could do with a laugh.

  14. Seamus Padraig says

    … the Chinese economy has gone from epic boom to bust.

    It sounds like you’re chugging the MSM-koolaid on the ‘Chinese depression’ story. Take a look at one of Karlin’s previous posts on the subject:

    China has long been expected to overtake the US economy (one economist dated it to as early as 2010), and there had already been a flurry in the media when the IMF claimed the same thing in December last year. The World Bank’s new figures just confirm the new reality and scaremongering about a bad night at the irrelevant casino that is the Chinese stockmarket is not going to materially change the fact. Annual growth continues at 7% per year, much the same as South Korea when it was at a similar stage of per capita development in the 1980s.


  15. “It is deeply unfashionable to say this but Russian living standards have improved astronomically in the 15 years of Putin’s rule…”

    Just as Libyan living standards soared in the 42 years of Colonel Qadafi’s rule. He found it one of the poorest nations in Africa and left it clearly the richest.

    ‘Supporters praised Gaddafi’s administration for the creation of an almost classless society through domestic reform. They stress the regime’s achievements in combating homelessness and ensuring access to food and safe drinking water. Highlighting that under Gaddafi, all Libyans enjoyed free education to a university level, they point to the dramatic rise in literacy rates after the 1969 revolution. Supporters have also applauded achievements in medical care, praising the universal free healthcare provided under the Gaddafist administration, with diseases like cholera and typhoid being contained and life expectancy raised. Biographers Blundy and Lycett believed that under the first decade of Gaddafi’s leadership, life for most Libyans “undoubtedly changed for the better” as material conditions and wealth drastically improved, while Libyan studies specialist Lillian Craig Harris remarked that in the early years of his administration, Libya’s “national wealth and international influence soared, and its national standard of living has risen dramatically.”‘

    • Wikipedia
  16. Russian people have a staggering history of enduring hardship, which may account for the almost humorous and endearing cynical attitude of its citizens, and the secret of their survival. Russia also has virtually unlimited resources and the ability to have a self-contained economy, even if hardships are necessary. The Russian people will bear with ease these difficulties, while the West could not. They have strong leadership, and something like a 90% approval rating of this leadership – the envy of politicians in most other countries.
    Their foreign debt is not huge, rubles earned locally are spent locally, and apart from some inflation this means little adverse impact to people employed, and who spend, in Russia.
    The almost total collapse of the previously successful Russian manufacturing and distribution of GM, Ford and Chrysler vehicles as a result of the sanctions imposed on Russia has the consequence that Lada is booming, as well as Lada exports to neighboring countries.
    The US and NATO countries have shot themselves in the foot by imposing these sanctions, driven Russia and China to close economic cooperation, and seemingly by design have turned friends into enemies in a matter of two years, through apparently specious propaganda. We have today a replay of the 1960 strategy of encircling Russia, and the media purposely conflates the old Soviet Union with the modern Russia purely for the reason of engendering fear and hate.
    I miss the interaction between the West and Russia of a few short years ago! Possibly sanity will prevail soon to restore it, because with proper diplomacy and economic cooperation there no greater ally.

  17. No, Seamus, those GDP figures are not credible. The Chinese economy was growing a lot faster than they showed a couple of years ago, and is not growing at all now. When steel, cement, automobile and electricity production, which were all growing at a double-digit percentage clip for many years in a row, are all declining or flat, I know what I’m seeing, and it’s not business as usual.

  18. Here are the documented facts that you may find inconvenient:
    “The key man behind the Odessa Trade Unions Building massacre: his many connections to the White House: “
    “Videos Show Non-Violent Protesters Murdered in Odessa Massacre:”
    The Holocaust Museums, ADL, and Lobby (in the US and EU) put Jewish people and Jewish sufferings on a pedestal (and what other country calls its army” the most moral” but Israel?). The sooner the idea that an ethnicity has no bearing for both noble and atrocious actions downs on the aggressive vigilantes of anti-Semitism, the better that would be for all parties involved.

  19. Reading this article brings to mind the old saying of “people in glass houses shouldn’t throw bricks.”

  20. We should have let Gaddafi crush the rebels. Post-Gaddafi Libya has fallen apart.

  21. in stark contrast to the New York Times’ Masha Gessen’s reliance on her “Je suis fromage” liberal Russian friend.


    Anatoly, my congratulations on a really well-researched and insightful commentary on the Russian economic landscape.

    You are absolutely correct in assessing that the marginal decline in GDP attributable to the 50% decline in oil prices, has been no more severe than you standard textbook recession. One reason is that the demand for oil, especially in countries like India, is exceptionally price elastic, and Putin to his great credit has arranged long-term forward and spot contracts to actually increase the sold output. In other words, oil based revenue fell much less than what might be expected, if demands on volume were less elastic.

    I am waiting, watching for the inevitable stampede to buy Russian assets in the near future (I predict December), with MSM replete with stories of “value investing” etc.

  22. Russian exports and the Russian economy are almost completely dependent on resources.

    A key component is a factor that is 20% or 30% of the cause. Oil and gas products are 70% of Russian exports. It’s much more important than a key factor. It shows that Karlin is down playing how beset by problems the Russian economy is and will be even more so in the immediate future.

  23. “Russian exports and the Russian economy are almost completely dependent on resources”

    Why hasn’t the Russian economy collapsed yet despite decreasing demand and the halving of oil prince?

    “A key component is a factor that is 20% or 30% of the cause”

    Your personal definition, not Karlin’s.

    1. Russian National Output = Consumption + Private Investments + Public Investments + Exports – Imports
    2. Oil is 30% of Total Exports (not 100%). So it is a portion of a component among 5 components.

    a 50% decline in Oil price does NOT imply Oil revenues, much less total exports, to go down to zero. In fact as I noted in comment #22, due to price elasticity (as price goes down, demand picks up very well), and Russian actions to enter into long term contracts, the impact of an oil price decline is far less impactful than MSM would have one believe.

  24. It’s aways been a debate as to which country has the better “full moon” parties, Thailand or India. When your currency devalues, smart money goes for the “sure thing”. Anjuna is where you’ll find all the missing Russians from Thailand.

  25. It’s not my personal definition. It’s based on my observations of how the word is used. “Key” commonly spoken means one of 4-5 or even more factors. So it was used in this case to imply that oil and gas products were an important part of a diversified economy. That implication is not the case.

  26. “crude oil, petroleum products, and natural gas accounting for 68 percent” of Russian exports

  27. The low oil prices although painful, is a godsend for the Russians as it will goad them to break out of the “resource curse”. It will mean for the Russians that they have to live on their wits. This can only be to the good as they can put their high education to creating industries and services, instead of settling down to becoming members of a rentier class.

    The key thing to avoid is the useless advice of the Americans and to turn instead to Japan and Germany to study how it can be done. What exactly does it benefit a forward looking people to become a bunch of stupid sybarites like the Saudis?

  28. Natural gas is not oil and petroleum products are not resources.

  29. I maintain that oil and gas are the same thing for the purpose of this analysis about political economy. Derived products are also natural resources. Although some very disorganized countries export oil but not petroleum products, refining is just a simple layer of value addition. It’s like saying that a country isn’t a bauxite exporter because it’s refined into alumina before being shipped.

    This argument in any case is tiresome if these are the points that are being quibbled with.

  30. silviosilver says

    I maintain that oil and gas are the same thing for the purpose of this analysis about political economy.

    That’s relevant with respect to Russian export reliance on resources, but not relevant to the present recession, since natural gas prices are roughly at the average level they’ve been for the last five years.

  31. The 68% statistic is a deliberate exaggeration. The real figure is around 50%. Most of Russia’s exports are resources, but this is not that unusual. Russia is a sparsely-populated country with the biggest natural resources in the world. Canada and Australia are very dependent on resources for their exports but I’ve never heard anyone talk about their flawed economy that has failed to develop. It’s mostly just propaganda. You’d have to be living under a rock not to see that the Zionist establishment in the West has been in full anti-Russian propaganda mode since at least 2013. It’s interesting that all but one (Kudrin) of the virulent critics of Russia that Karlin mentions are Jews. And he is a disgruntled former minister who resigned because of a policy disagreement.

  32. I think what many miss in these discussion is what they mean by “collapse”. Russia has had much worse conditions than it has now, and it did not disappear. Nobody wants their nation not to prosper, but many have taken it to the extreme that the only thing that matters is the economy, they have taken the nation as the economy and nothing much else.

    If anything when I look at countries like Germany, they have already collapse, and by collapse I am saying that the nation is about to cease to exist. The fact that it has no problem in taking in close to 1 million foreigners for the year and they produce no offspring, that is a real collapse.

  33. Alumina is not a finished end-product, kerosine, diesel, benzine, etc. are.

  34. It’s wealthy Russians who don’t trust the Russian economy. They send their money out of the country. Do you know what the penalty in developing South Korea was for capital flight? Death.

  35. Yes, RF has its difficulties. But why the idiots that pushed Ukraine away from the reliable Russian market are not trumpeted as such? – the idiots and profiteers on other peoples’ sorrows and troubles. Here is a report on a state of Ukrainian economy:
    “According to data of the World Bank, Ukraine’s real GDP performance for the last 24 years has been the worst in the world…
    In the first half of the [2015] year, the decline of industrial production was 20.5%. The decline in agriculture was 9.3 per cent and exports collapsed by 35.4 per cent. The collapse of exports to Russia was particularly marked. Real wages in Ukraine fell 23.9%…. the decline in GDP for the year will slow to 8.9 per cent, while inflation is expected to reach 45.8 per cent (December to December).
    Ukraine’s economy contracted in 2014 by 6.8 per cent while prices rose by 24.9 per cent. In the first quarter of 2015, the GDP decline was greater than that of the last quarter of 2014, 17.2 per cent compared to 14.8 per cent.
    Military spending rising steeply: Despite 14 per cent inflation, the budget for the regular armed forces will more than double in real terms.
    And a cherry on the Ukrainian pie: “… the budget approved by the Ukraine Rada on Dec. 11, 2014 contained an ‘action plan’ for 2015-2020, which will see annual military spending rise to five percent of the country’s GDP. The plan also projects that Ukraine will formally end its neutral, non-bloc status and join NATO and for its armed forces to switch to NATO military standards by 2020.” In short, the US neocons are eager to keep and elevate the danger of a thermonuclear war.