Russia: perfect storm?

Russia enters 2008 in excellent economic shape, and robust growth will be maintained during the year, albeit with some deceleration. Yet heightened political uncertainty arising from the transition of power from President Vladimir Putin is a source of downside risk.

A 'perfect storm' is possible. This would combine continued political turmoil in Moscow, a continuation of the drive for state control and a marked worldwide slowdown, reducing oil prices. Such a combination of adverse circumstances has a low probability but it would have a large negative impact.

• The succession process from President Vladimir Putin has already revealed fierce infighting within the political elite, creating greater than usual political uncertainty. There is no guarantee that when Putin's 'final plan' is revealed, it will necessarily end this turmoil.
• A further worsening of credit conditions in the West could curb Russian corporate borrowing and hence investment, while a slowdown in world economic growth would weaken Russian export earnings.

The fate of oil company Russneft will be decided in 2008: it will either be acquired by the Kremlin-loyal aluminium magnate, Oleg Deripaska, or by the state represented by oil giant Rosneft. The outcomes of this will show whether the drive for state control in Russia is continuing or beginning to wane.