ST. PETERSBURG, Russia — For more than a dozen years, it has been impossible to miss Russia’s soaring, often ostentatious, energy wealth — the flashiness of Moscow, the 250-foot yachts and the hundred-million-dollar penthouse apartments for the children. And the riches have hardly been confined to the private sector. Last year, when Vladimir V. Putin wanted to shore up support ahead of Election Day, the salaries of government workers jumped; military pay actually doubled.
Those heady days seem to be running out, however. The great gush of oil and gas wealth that has fueled Mr. Putin’s power and popularity and has raised living standards across Russia is leveling off. Foreign investors, wary of endemic corruption and an expanding government role in the economy, are hanging back, depriving the economy of essential capital.
In many respects, analysts say, the same iron fist that Mr. Putin wielded to public approval in the early years of his presidency could be the biggest obstacle to a badly needed economic restructuring, and potentially even turn public opinion against him.
Russia’s economy, the world’s eighth largest, slowed to a near standstill in the first months of this year, and the Kremlin is now preparing to dip into its $171 billion rainy day fund in a bid to spur growth. But the problems for Russia’s economy run deeper than its overwhelming dependence on oil and gas revenues, which now account for more than half the federal budget.
Despite the conspicuous consumption of oligarchs and the growing middle class in Moscow, most of Russia’s goods-producing economy has been languishing for decades. Many provincial cities and towns have grown shabby, the factories that sustained them decrepit. Young people have moved away.
With flattening revenues, the government badly needs to attract foreign capital, but the Kremlin’s recent move to tighten its grip on the oil industry through Rosneft, the national oil company, is just the latest warning flag to potential investors.
“The fundamental problem in this economy is still the politics of the country,” said Bernard Sucher, the former head of Merrill Lynch in Russia, who serves on the board of Aton, an investment company.
“The way power is organized in this country dooms the economy to underperformance,” he said. “The state is too big, it’s involved in too many areas of activity, and involving itself in too many more areas of activity, and by its nature discourages private investment.”
As Russia’s senior political officials, business leaders and foreign investors convened here in St. Petersburg on Thursday at an economic forum that serves as an annual gathering of the country’s top financial minds, the task facing Mr. Putin was how to create sustainable growth in a country where commodities, taken together, now account for 80 percent of exports.
Some experts at the forum said they were confounded by Russia’s contradictory problems: low growth and high inflation. “Financial policy is weird,” said Yu Yongding, a senior fellow at the Institute of World Economics and Politics in Beijing. He was on a panel with Elvira Nabiullina, an aide to Mr. Putin who has been tapped to lead Russia’s central bank, and Russia’s economic development minister, Andrei Belousov.
“Where is your industry?” Mr. Yu asked. “You can produce super excellent jet fighters, but what else?”
Energy prices, while still relatively high, are expected to flatten or decline in the years ahead. Gazprom, the Russian energy behemoth, has been cutting prices and renegotiating contracts, under pressure from cash-poor clients in Europe and rising competition globally, caused in part by market shifts like development of American shale gas.
Discounts to customers cost Gazprom $4.2 billion, or about 7 percent of pretax earnings, according to Renaissance Capital, an investment bank. Oil revenues are also projected to decline long-term as production grows more costly and new technology curbs demand.
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