Russia Estimated to Approach its Covid-19 Peak Next Week; Oil Deal Reached with OPEC+ as Russia Prepares to Ride Out Economic Downturn

A pretty good article by Judy Twigg appeared in recent days in the National Interest which details the time frame in which the likely peak for Covid-19 cases will occur. The article also delves into Russia’s geography, demographics and health care system and how these will likely factor in to the length and severity of the pandemic there. Here is an excerpt:

Over the past two weeks, Russia’s leadership has started to take the coronavirus pandemic seriously. As of April 9, 11,917 Russians were reported to be infected, based on over a million conducted tests, and the numbers are doubling every two to three days. Key national experts are predicting the timing of Russia’s peak for April 17–21, with infections not falling off significantly until early to mid-June. The government appears to be bracing for the worst. Currently, twenty thousand hospital beds, both public and private, are being prepared in Moscow alone.  

So far, Russia’s epidemic is heavily Moscow-centric, but it’s shifting noticeably to hot spots in other parts of the country. The identified case load outside Moscow has climbed from 29 percent to 34 percent of all infections just over the last few days, and that’s with testing activity skewed heavily toward Moscow and a few of the natural resource-rich regions of Siberia and the Far East. The relatively low number of confirmed cases in St. Petersburg—408, as of April 10—may have something to do with only forty thousand tests having been performed there. 

In terms of sheer numbers of reported tests performed and per-capita coverage of testing, Russia is one of the top countries. The quality and coverage of that testing, however, is unclear. Tests are being processed at 190 public laboratories around the country as well as a handful of private labs and clinics. New Russian-produced tests are said to be under development to deliver results more rapidly and precisely. There are numerous anecdotal reports, however, of people hospitalized with pneumonia without being tested for coronavirus, even though their conditions clearly indicate they might be infected. A Higher School of Economics survey conducted on April 4–5 found that half of Russians think the authorities are understating the actual number of infected people, while only 12 percent find the official statistics reliable. 

It’s not that the Kremlin is systematically and maliciously manipulating the books, taking in one set of numbers and then reporting out something different. The reality is surely more nuanced, having to do with factors like the criteria established for testing, and with the incentive structure at the lower levels of the system to report bad news.

Continue reading here.

In light of the worldwide economic slowdown caused by the pandemic and the resulting slump in oil demand, OPEC+ – which includes OPEC, Mexico and Russia – agreed to cut oil production by about 10%. The agreement reportedly happened after intervention by the United States in the negotiations. According to AP:

American officials have gotten involved with OPEC in the past, making phone calls or attempting to sway a deal during international crises and unusual circumstances. The intervention has typically been in response to high prices; instead, in the current situation, oil prices dropped more than 60% since the start of the year…

…Mexico stalled the negotiations by refusing to cut more than 100,000 barrels a day of production, when OPEC was asking for double or triple that amount. Trump said the U.S. would help by shouldering the cuts that Mexico was unwilling to make….

“They had to agree to give something like a cover story, a diplomatic cover, so that the other parties in OPEC, who whether they liked it or not were going to have to accept these terms, would be able to do so without a loss of prestige,” said Kevin Book, managing director at Clearview Energy Partners.

Trump’s statements also signaled that the U.S. views Mexico as an important partner in the integrated North American energy market, said Amy Myers Jaffe, senior fellow at the Council for Foreign Relations, who also saw it as an important policy move. “I think it will serve the president well on every count,” including border issues, she said.

The economic slump and steep reduction in oil prices is expected to reduce Russia’s GDP by .5 to 1% this year when it was expected previously to enjoy a modest rise. But due to the conservative macroeconomic policies the Russian government oversaw over the past several years due to western sanctions, the country is in a reasonable position to weather the storm. Chris Weafer, an economic analyst who has lived and worked in Russia for years explained the possible future scenarios:

.Russian President Vladimir Putin’s government has spent the last three years meticulously, i.e. at a painfully slow pace, preparing a fiscal and industrial strategy that the president hopes will lead to sustained economic recovery. More than that, his ambition is to also use these programs to improve social conditions. This means he would have greater public support for whatever succession strategy he chooses in 2024, as opinion polls show that support for the president has become closely linked with economic wellbeing…

…The big policy and spending decisions will likely be made after the summer when, presumably, there is a better sense of the damage caused, both domestically and globally, by the pandemic. By then the oil price trend should also be clearer. If both look favorable, then expect few major changes to the current recovery strategy. But, if the oil price remains well below the breakeven and is in danger of staying there into 2021, then we can expect big changes to spending plans and to economic, social and political expectations. Putin would not approve a budget deficit for two years in a row because of the risk of financial erosion and leaving the country vulnerable to future sanctions risk.

Existing sanctions, while acting as a positive catalyst initially, are proving a big drag on inward investment. Investors are reluctant to engage more with Russia because of perceived reputational and business risk. That is certainly slowing the pace of recovery and increasing the financial burden on the federal budget. Hence, it is the size of oil tax receipts that matters more over the medium term than additional sanctions.

Longer term, investment flow is critical for the development of any economy. Russia can make progress during the remainder of Putin’s current term, and come very close to the ambitious economic and social targets he has set, if the oil price recovers and COVID-19 is dealt with in 2020.

Read full article here.

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