Oil's Crash Stirs Unrest in Russia as Slump Hits Home

BARNAUL, Russia -- Russia's oil-fired economic miracle is unraveling as industry shrinks and job losses mount. Now the first stirrings of social unrest have the Kremlin groping for a response.

Gloom deepened over the outlook for oil-export revenue, Russia's main earner, as prices plunged Thursday despite OPEC's move this week to deeply cut production. Oil hit a 4½ year low on anxiety about falling global demand, with crude closing at $36.22 a barrel in New York, down $3.84. This could spell trouble for Russia, which has pegged its 2009 budget on much higher oil prices, meaning it will have to trim spending.

The drop in oil prices is eroding the Kremlin's ability to replenish its gold and foreign-currency reserves just when it needs them most. Although the country's reserves are the world's third-largest behind China and Japan, it has been spending tens of billions of dollars in an attempt to prop up its falling ruble and stave off public panic.
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The Kremlin has tried in state media to downplay the impact of the global financial crisis. Yet popular discontent is growing.

Last weekend, thousands of angry residents in the far eastern city of Vladivostok took to the streets and blocked traffic to protest government plans to raise tariffs on secondhand foreign cars, which are one of the impoverished region's biggest moneymakers. Similar protests have been attempted in Moscow, St. Petersburg and Kaliningrad, and further demonstrations are planned for Sunday in Vladivostok.

Public anger also spilled onto the streets this fall in the Siberian town of Barnaul, as thousands of pensioners who had lost their right to discounted public-transport tickets staged noisy protests.
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The prospect of further unrest poses what could be the biggest challenge yet to the authoritarian system built by Mr. Putin. It also foists a stark choice on the Kremlin: to stifle dissent, or to placate protesters to provide some kind of pressure outlet. For now, the Kremlin has decided on a mixture of both. But the government's options may narrow as its financial reserves shrink.

"They're incredibly scared of this," says Yevgeny Gontmakher, an economic adviser to the Kremlin. "They don't know how to operate in this environment."