Putin Devotes Oil Windfall to Guns, Not Butter

The recent rise in oil prices -- almost 80 percent from their mid-January low -- is a sudden gift to the Russian economy and government. Yet officials act as if the country is as squeezed financially as it was earlier this year: There’s no sign of expanded social spending, despite approaching parliamentary elections and worrying poll results. The Kremlin has other plans for any extra money.

In early April, the Economy Ministry issued a forecast for the year based on an average oil price of $40 per barrel. That seemed optimistic at the time, when the year-to-date average price hovered around $35. At the beginning of June, the average has almost reached $40, and it could rise because the current price is $50 and the rally shows no signs of letting up. Russia added $20 billion to its international reserves between January and April. Inflation has been stable at 7.3 percent (on a year-on-year basis) for three consecutive months -- the slowest price growth since 2014, creating conditions for an interest rate cut, perhaps even this week.