Russia’s Oil Crisis Could Last For Decades: Officials Prepare For Worst-Case Scenario As Prices Remain Low

With oil prices hovering slightly above $30 a barrel, the Russian government might be forced to revise its 2016 budget and look to other creative options as officials worry prices could stay low for the foreseeable future. Russia’s Economic Development Minister Aleksey Ulyukayev said Wednesday the Kremlin should consider selling bank assets to plug budget gaps.

“For commodity-based economies such as Russia ... the period of low commodity prices will be very long. I find it difficult to judge whether it’s the era of global commodity cycle or simply a new pattern. But I’m convinced that this is [going to be] a very long period of time,” said Ulyukayev. “The biggest risk is that low prices [are likely to be] protracted, meaning for years or decades.”

The Russian Central bank has presented an optimistic forecast predicting that oil prices will rise to the range of $70 to $75. But officials including Prime Minister Dmitry Medvedev have said the Kremlin needs to prepare for a “worst-case” scenario if prices continue to move lower.

The suggestion to sell government-owned stakes in Sberbank of Russia PJSC and VTB Group reflects the dramatic change over the past 18 months. Russia’s economy relies on commodities and was considered healthy 18 months ago when oil was trading for over $100 a barrel.

European and American economic sanctions against Russia following its annexation of Crimea from Ukraine in March 2014 have also hurt the economy. Russian President Vladimir Putin has been critical of the decision to keep sanctions in place.

“The West’s sanctions are not aimed at helping Ukraine, but at geopolitically pushing Russia back. They are foolish and are merely harming both sides,” Putin said in an interview published Monday.

The Russian government pegged its 2016 budget to oil prices remaining at $50 a barrel. Worries have emerged of a deficit, with Finance Minister Anton Siluanov saying a price of $82 a barrel is needed for a balanced budget, the BBC reported.