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The Russian budget’s dependence on the oil market is striking

The Russian budget is calculated based on the average price of $70.1 per barrel at the ruble exchange rate of 68.3 per dollar. According to pessimistic estimates, the discount on Russian oil has already exceeded well over 30%.

   
January 18, 2023, 14:18
Russia
Photo: bruegel.org

Photo: bruegel.org

MOSCOW (Realist English). The vulnerability of the Russian budget on the oil market is striking, especially in light of the figures that the head of the Russian Ministry of Finance Anton Siluanov has recently announced (3.35 trillion rubles of deficit for the past year, which is 2.3% of GDP).

A sophisticated system of counterweights is responsible for the stabilization of the main revenue item, which must take into account many introductory factors: the level of the ceiling on oil, the variable market price per barrel, the size of the discount with which Russian companies export the “black gold” via alternative routes (to China, India and through intermediaries to sworn “Western partners”).

In a word, saving Russia’s oil profits more and more looks like a chess game lasting the budget year. Calculating the bar of irreparable damage for Moscow is becoming increasingly difficult. But on the American portal Oilprice.com they engaged in this thankless task and calculated that now the break-even price for the Kremlin is $40 per barrel. With a curious comparison that it is “like the best producers of shale oil in the United States.”

They write that with the price of Brent currently about $80 per barrel, the Russian Federation gets about $56 a barrel from its alternative partners. Thus, neither the monstrous discount of 30%, nor the lack of its own tanker fleet, nor the difficulties with ship insurance, still deprive the Russians of a profit that allows them to live without reducing production volumes. In addition, the scale of transportation to Asia via new oil pipelines is growing.

The Russian budget is calculated based on the average price of $70.1 per barrel at the ruble exchange rate of 68.3 per dollar. According to pessimistic estimates, the discount on Russian oil has already exceeded well over 30%. That is, its real value has slipped below $40 (in December it was sold for an average of $50)…If this is the case, then this is a very bad trend. In such a scenario, much depends on the political will of the Russian leadership.

On the rigidity of the discount control. It is difficult to imagine mechanisms for such control, given the fact that the state has an absolute minimum of tools to influence corporations (at least within the framework of existing laws). Some of these instruments (dividends and one-time payments to the budget) still exist only in theory. The attempt to introduce them in 2018 caused a real hysteria in the camp of the financial liberals.

By the way, the innovator of such non-trivial means of curbing corporations was the then first Deputy Prime Minister Andrei Belousov himself (then still being Vladimir Putin‘s aide). He proposed to withdraw 513.7 billion rubles from metallurgical monopolies and chemical companies that received windfalls from an extremely successful export situation. The President even signed a corresponding decree, but there was a general liberal paroxysm in the Ministry of Finance and the media. After that, Peskov expressed disagreement. It seemed that the topic of one-time payments to the Russian budget was exhausted. But suddenly it turns out that the Kremlin remembers everything, and holds a trump card up its sleeve.

In early January, Bloomberg reported that Prime Minister Mikhail Mishustin approved “a plan to seize part of the income from fertilizer producers and representatives of the coal industry.” The Government will oblige them to pay increased contributions, as well as additional one-time payments to the budget. Great idea. I would like to remind you that in addition to miners and agrochemists, in Russia there are also oilers, gas workers, nuclear engineers and, most importantly, metallurgists.

Oil MarketRussiaRussia’s EconomySanctions
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