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Mainstream, VOL LVIII No 23, New Delhi, May 23, 2020

Impact of Covid-19 and OPEC+ on Russia

Saturday 23 May 2020

by R.G.Gidadhubli

Russia occupies second place behind the United States in the world, in terms of total infections due to Covid-19 virus with confirmed cases numbering 272,043 on 17th May 2020 and death toll of 2,537. Hence from sixth rank in March, Russia emerged as second rank in May 2020. Moreover, Russia has also hit the headlines since several high ranking political leaders have been infected by Covid -19, which has been a matter of great concern for Russia. There were reports in the last week of April that the virus had infected the Russian Prime Minister Mikhail Mishustin being tested positive and hence quarantined. Subsequently, in the first week of May the Culture Minister Olga Lyubimova, and Construction Minister Vladimir Yakushev had been infected by this virus and were quarantined. In the third week of May Russian President Vladimir Putin’s aide Kremlin spokesman Dmitry Peskov and his wife, Tatyana Navka, were tested positive for the virus and were in the hospital being treated for COVID-19.

Based on all these reports the Moscow Mayor Sergei Sobyanin rightly admitted that Moscow, the Russian capital has emerged as the epicenter of the contagion even as the country was not yet past the peak of the outbreak. In fact several thousands of Russians in Moscow and St. Petersburg were infected by the spread of this pandemic since the last few months.

Moreover, so far as Covid-19 is concerned, it is important to note that during the last few months when USA and many European countries specially Italy, UK, Spain, Germany and France were reporting the spread of Covid-19 and reported large number of infected cases and deaths, the number of reported cases in Russia was relatively less and hence there was a perception that Russia was spared by this virus. But the Virus seems to have spread widely and sharply in the country since March 2020 covering various economic sections of society including senior citizens and also workers in industry, construction, transport, services and agriculture.

Hence the President of Russia Vladimir Putin has confirmed that the situation inside the country remains "very difficult.” He has in mind not only the problem of the spread of virus but also economic problems facing the country. He is aware that Russian economy has been suffering badly during the last few years. Russia’s GDP has declined by about 5 pc and more than one-third of exports have gone down. Moreover, rising inflation and unemployment have hit the economy superimposed and confronted by economic sanctions by the West. Thus Russia has been facing problems on two fronts namely Covid-19 and OPEC + which need to be analyzed.

Covid-19

It is a matter of great significance that on this issue of reporting of the Covid-19, there are different contentions and views. Some experts have questioned whether testing procedures were flawed or whether local and regional officials were misclassifying cases. In fact it is officially admitted that testing had been too slow to give a complete picture. Some analysts have also opined that Russia was underreporting this infection since information from many far off regions such as Siberia, Far Eastern parts of Russia possibly was not available. For instance, more than 2,000 workers at the Kola Yard construction site north of Murmansk have tested positive for the virus which was reported after few weeks of testing.

In fact on this issue The New York Times, the Financial Times, and others, have added to evidence from skeptics, inside and outside Russia, that authorities may be underestimating the toll from the pandemic possibly for political reasons. Moreover, few analysts have mentioned that if there were multiple causes of death, it was not linked to Covid-19. For instance, if a person with an underlying heart condition contracts COVID-19 and dies, the cause of death might be attributed to the heart problem and not to the coronavirus as was the case reported in Russia.

On this issue the World Health Organization’s representative in Russia Melita Vujnovic has downplayed doubts about the statistics from the Covid-19 pandemic. Her comments in an interview with Current Time, a Russian-language network came after several media organizations highlighted discrepancies in localized fatality figures for the Russian capital, and comparative figures with other hard-hit European countries.

      At any rate Russia has been suffering from this virus for various reasons. Firstly, hospital infrastructure facilities in Russia are far from satisfactory to deal with the problem. It is reported that in some hospitals ventilators are damaged and not repaired for lack of funds resulting in death of 5 patients in a hospital in St. Petersburg on 12th May 2020. Secondly, several doctors have suffered badly and few died due to pressure of work and lack of support facilities. Thirdly, there are not enough doctors and medical staff in the country since the health sector in Russia has been neglected during the last two decades.

Fourthly, Russia has been facing a major demographic problem with sharp decline in population during the last few decades resulting in about half of population of Russia are above 60 years of age and they are more prone to be affected by this virus. Fifthly, Russia has several thousands of workers from Central Asian states working in industrial enterprises, infrastructure, agriculture and services and some of them might be infected by this virus. There are reports that many of these temporary workers are retrenched.

OPEC+ 

It has become a matter of great concern since Covid-19 infection has very adversely affected economies all over the world. This has resulted in reduction in oil demand and hence oil prices, which has become a matter of depression for oil exporting countries including OPEC. Russia though not a member of OPEC, being endowed with huge hydrocarbon resources is one among the major producers and exporters of oil and natural gas in the world. At the same time it needs to be noted that during the last over a decade Russian economy has been heavily reliant and dependent upon oil and gas exports with over 40 pc of national income generating from oil exports. Looking back, during the last over a decade rising oil prices from about $ 80-90 per ton to $ 150 per ton benefitted Russia as also all OPEC countries. Hence in fact Putin’s vision had been to make Russia Energy Super-Power and which enhanced Putin’s popularity in the country.

But Covid-19 has drastically changed the scenario. Oil prices have come down to below $ 60 per ton due to fall in oil demand. Hence in March 2020 OPEC+ group proposed oil production cut considering decline in global oil prices. But Russia which has been over dependent upon petrodollars for survival of its economy was reluctant to reduce production. As opined by Russia analyst Todd Prince, disagreement with OPEC was by Russia’s Rosneft chief Igor Sechin who is the driving force in Kremlin decision. He even opined and complained that OPEC+ cuts of oil production only opened the door for other nations like the United States to increase output and wield greater political influence. Sechin was candid in stating “United States uses energy as a political weapon on a mass scale. Sanctions, or even the threat of their imposition, have a destructive effect on the global energy market ecosystem". The Russian president Vladimir Putin and Igor Sechin have over two decades of close relationship both hailing from Sr. Petersburg. While Putin has emerged as a powerful political leader, Sechin has become a multi-billionaire having joined Rosneft in 2004. Oil factor has brought them closer since Putin wants Russia to emerge as an Energy Super Power, Sechin as Energy Giant taking over several oil companies in Russia and abroad. Mention may be made of Yukos, TNK-BP, Bashneft in Russia and also oil company in Venezuvela. In about 10 years Sechin has made Rosneft the 2nd largest oil producer in the world after Saudi Aramco.

Hence both Putin and Sechin have close contact and supported each other. This is evident from the following example. Russia analyst Stanovaya stated that in the third week of April 2020 Putin made the final decision to walk away from negotiation in Saudi Arabia on additional production cuts supporting Sechin. But notwithstanding close ties under prevailing conditions Moscow had to come back to negotiating table with Saudi Arabia OPEC+. Thus even as initially Putin was not in favor of reducing oil production, he realized the need to reduce oil production possibly for larger geo-political and geo-economic reasons.

Thus Russia is in a dilemma on this issue since oil export is a major source of income for the country which is facing several economic problems. But at the same time Russia cannot take decisions antagonistic to OPEC+ as it is a geopolitical issue for Russia since Moscow has close relations with countries in the Middle East. Putin has provided powerful diplomatic and military support for Syrian President Bashar al-Assad’s government. Thus in the Middle East, Putin has raised Russia’s profile in recent years by pursuing warmer ties with Saudi Arabia. Hence Russia and Saudi Arabia have some common interest and have cordial political relations. Both have problems in relations with USA on oil issue since USA has also become a major exporter of oil to Europe which is main oil market for Saudi Arabia and Russia. In fact Trump wants to export oil to Ukraine to further targeting Russia’s interest.

Putin has taken some policy decisions to relax so that economic activities are revived. He has given more powers to heads of regions to promote their economies. At the same time on political front Putin, who has been elected and will remain as president till 2024, has postponed the proposed constitutional amendment to be taken by the Duma due to Covid-19 which might give him an opportunity and option to remain in power beyond 2024.

DR R.G.GIDADHUBLI
PROFESSOR AND FORMER DIRECTOR
CENTER FOR CENTRAL EURASIAN STUDIES
UNIVERSITY OF MUMBAI
MUMBAI, MAHARASHTRA STATE

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