Salzburg Diary: Why it’s impossible to predict Russia’s future

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The focus of the seminar I’m attending here in Salzburg is figuring out what Russia will be like in 2020. It’s no small task, since Russia’s political and economic development in the past few decades has been notoriously unpredictable.

One thing we do know is that the future of Russia will largely be determined by oil and gas, at least in the near term. Oil and gas account for about 20 percent of Russian GDP and more than 60 percent of its exports. The rest of the economy depends heavily on energy. As one panelist put it today, oil is like the blood of the economy, so you can’t think about it solely in percentage terms. You can’t live without blood, no matter what its percentage of your body weight might be.

The recent high oil prices have a great deal to do with Russia’s democratic backsliding, as Thomas Friedman argued in “The First Law of Petropolitics.” Oil revenues allow the Russian state to satisfy its citizens without granting them greater political rights. So, if you want to understand where Russian politics are headed, you need to know where oil prices are going to go.

But here’s the problem: Nobody has a clue what oil prices will look like in 2020. As one of the presenters pointed out, even people you would think would be the top experts on this issue are usually wrong. Take the case of former BP CEO Lord Browne, who told a crowd at the Peterson Institute back in 2005 that he expected “a price that stabilizes at around $30 a barrel.” Whoops. Today, oil prices are just under $107 per barrel.

If oil-company CEOs can’t predict the future accurately, what about the oil futures market? In theory, oil traders ought to know better than anyone where prices are headed, since their livelihoods depend on making sound decisions. In reality, though, oil futures prices are almost always just an extrapolation of today’s prices into the future. If oil is $10 a barrel today, the futures market will guess that it will be $10 tomorrow.

The obvious implication here is that anyone trying to forecast Russia’s future is in big trouble. Another implication is that Dmitry Medvedev is only going to be able to shape Russia’s development on the margins. More on that soon.

Blake Hounshell is Web Editor of ForeignPolicy.com. He has been blogging this week from the Salzburg Global Seminar session on

Russia: The 2020 Perspective

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