Rising oil prices augur well for Russia, but not for West

After the price limits imposed by the United States and other Western countries on Russian oil exports took effect last week, Russia announced it will cut oil production by 500,000 barrels per day starting March and not sell oil to countries that directly or indirectly support price limits. The Organization of Petroleum Exporting Countries and non-OPEC oil producers have hinted they will not take any action to make up for the oil shortfall.

The announcement has sparked global concerns about tight oil supplies, with international oil prices rising significantly the same day. Analysts believe that as the global economy stabilizes, oil demand has picked up significantly, forming solid support for oil prices. Therefore, Russia's announced oil output reduction is likely to tighten the oil market and push prices higher.

According to a statement issued by Russia's central bank on Friday, Russia's gross domestic product fell by 2.5 percent in 2022, better than last year's estimate of a decline of 3 to 3.5 percent. Although Europe significantly reduced energy imports from Russia in 2022, Russia still received substantial incomes from sharp oil price rises. As the Russian central bank raises its 2023 GDP growth forecast, Russia is bound to do everything it can to overcome the impact of Western oil price curbs and steadily boost its oil earnings.

High oil prices are a boon for Russia but a poison for the US and other Western countries, who are worried it will boost high inflation, a major obstacle to Europe and the US' economic recovery. From the United Kingdom to France and Germany, high inflation has eroded people's real wages, triggering such social problems as strikes and rising crime. In early February, about half a million people went on strike in the UK, its largest industrial action in more than a decade. Recent data released by the German police said 398,848 crimes were reported in German railway stations and trains in 2022, up 12 percent year-on-year.

The International Monetary Fund recently raised its forecast for Russia's economic growth over the next two years, while cutting its 2024 forecasts for the US and eurozone by 0.2 percentage points each. This is also based on its assumption that oil prices will fall by about 16 percent in 2023. Why the IMF holds a positive attitude toward Russia's economy is worth consideration.