Scott Martin: Petroleum is the lifeblood of the Russian economy, but a recent round of stress tests indicate that oil prices will have to plunge to global crisis levels to trigger another recession there.
With Brent crude (NYSE:BNO) down 16% from its April peak and Libyan supply still coming back to the market, targets for Russian economic growth have been spiraling lower.
For many traders, the question is not whether crude has room left to fall, but how severe that fall will be and what it will do to the oil-dependent economy.
Oil and gas contributes roughly a third of the country’s overall gross domestic product and half of the Kremlin’s revenue.
To see just how vulnerable Russia is, the Economic Development Ministry ran a series of stress tests and determined that the economy would keep growing at an annualized rate of 2% to 2.5% even if Brent crude falls another 23% to $80 a barrel for an extended period.
That kind of drop would effectively push oil prices back to where they were last September, so it is a fairly reasonable scenario.
It would take a steeper plunge to $60 a barrel — winding the global economy all the way back to May 2009 — to trigger a formal contraction of 1.5% to 2%.
Even then, the models showed that Russia would start growing at an annualized rate of 2.5% to 2.7% again starting in 2013, with or without help from the energy markets.
Either way, keep watching oil for the key to Russian stocks (NYSE:RSX). As one goes, so goes the other:
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