Hard times for the Russian economy, and now the interpreters of Moscow’s financial policy themselves are recognizing it. Speaking at the press conference Finance Minister Vladimir Putin, Anton Siluanovhe said, regarding the latest wave of sanctions imposed by G7 countries, the EU and Australia following the invasion of Ukraine, that the country’s export earnings are under pressure and that this could push the deficit/GDP ratio beyond the 2% initially forecast for the end of the year.
In response, President Putin banned the supply of Russian oil and petroleum products to countries that impose price caps, allowing deliveries to these countries only on the basis of special permission from the Kremlin leader.
No more oil for those who apply sanctions
Earlier this month, the European Union and the United Kingdom banned it the import of Russian crude oil by seawhile the G7 capped other sales by preventing Western companies from insuring, financing or shipping Russian crude above $60 a barrel.
Putin today, Tuesday, December 27, signed a decree announcing the retaliatory measures, which will take effect on February 1 and will last until July 1, 2023.
Weighs the ceiling on oil
The cap on oil exports, crude and refined, could force the Kremlin to cut production output next year between 5% and 7%. Moscow should still be able to finance the cuts through the issuance of domestic bonds and the use of emergency funds but “the initial signs suggest that the country’s economy is starting to feel the pressure,” he commented to cnbc Nicholas Farreconomist of emerging European countries of Capital Economics.
Collapse of energy revenues due to the drop in oil prices
«The data», continued the expert, «show that exports of Russian oil have collapsed once the sanctions have been introduced, and the spread between the price of Brent oil (today, Tuesday 27 December, slightly below 85 dollars per barrel, ed) and the Ural oil price hit a six-month high last week.
Farr suggested that this factor will exacerbate the hit to Russia’s energy revenues due to the drop in global prices of the last few months. Brent, an international benchmark, fell from a peak of around 98 dollars a barrel in October to around 77 dollars at the beginning of the month, before recovering around 84.5 dollars.
Weighs even the weak ruble
In addition, in recent sessions the Russian currency, the ruble, has lost about 10% of its value against the dollar, thus becoming the worst performing emerging currency. A primary consequence of this factor could be «a upward pressure on inflation due to higher import costs,” Farr continued.
Moscow’s central bank, which ended its string of interest rate cuts in October and kept its monetary policy unchanged in December, warned that inflationary risks “outweigh disinflationary ones.” If the ruble’s decline continues, according to Farr, the central bank led by the governor Elvira Nabiullina could be forced to “raise rates to keep the cost of living under control”: which is why Capital Economics believes that “the erosion of resilience of the Kremlin to sanctions will probably be a key theme of 2023».
In 2023 the economic contraction will come
The country has so far benefited significantly from the boost given to trade by high commodity prices, but this robust support to the economy has been fading in recent weeks.
«We believe», underlined Farr, «that the Russian economy will suffer a contraction of 2023while free-falling energy prices will put the trade balance under pressure.’ The current surplus, according to Capital Economics, is destined to “reduce rapidly in the coming months”. There is a high risk that «a extensive external rebalancing starting from 2024, although growth will remain extremely slow». (All rights reserved)