The geopolitical crisis in Ukraine could cut Russia’s balance of payments by the equivalent of 2% of GDP, and lower oil prices could knock off another 2%, Maksim Oreshkin, head of Russia’s Finance Ministry’s strategic planning department, said.
Russia’s Urals crude oil experienced a significant drop from its
June price of above $110 per barrel to its current price of $93
per barrel, a reduction that Oreshkin believes, coupled with
Ukraine-related economic problems, could sink Russia’s balance of
payments by a total of 4 percent.
Oreshkin explained that lower Urals crude prices reduce exports
by $55 billion per year, the official said at the Fitch ratings
agency conference on Thursday, Reuters reports.
The World Bank recently lowered their GDP growth estimate for
Russia in 2014 to 0.5 percent, effectively equivalent to
stagnation. In 2013, the economy expanded 1.1 percent to $2.1
trillion.
The sudden drop is structural, whereas in the past it was
cyclical Oreshkin said. Now it has to do with a decline in demand
and increase in oil production, in addition to Libya returning to
the oil market.
“It is unlikely that we will see a sharp drop in prices, but
we are unlikely to see a sharp rise. Most likely, we will see
stabilization in the area of $90 per barrel,” he said.
The Finance Ministry has projected a baseline Urals crude price
of $104 in 2014, and $100 in 2015-17, but as noted by Economic
Development Minister Aleksey Ulyukaev, there is a risk of price
change, in the case of turmoil in the Middle East as well as a
global economic turndown, which will lower consumer demand.
Oreshkin said that Russia could be being too soft on monetary
policy. The government has planned on $80 per barrel prices as a
cut-off when drafting the budget.
According to Oreshkin, the economy “didn’t even notice any
shocks.”
“When the Economic Development Ministry released a forecast
of $100 per barrel, we said then that we see the risks that oil
will cost $ 90-95. It fell in this range, however. When it comes
to conservative projections, the use of the lower level of this
range would be a conservative approach,” Oreshkin said.
Russia, the world’s largest energy exporter, relies on oil and
gas exports for 50 percent of its federal budget, as well as 70
percent of the country’s total exports.
Urals crude, Russia’s key export blend, hails from the Ural
mountain and Volga regions, and is usually priced slightly below
Brent.
Sanctions also threaten Russia’s oil future.
The CEO of Russia’s second-largest oil company, Lukoil, said that
he expects sanctions to affect 20 percent of Russia’s total oil
output – or about 100 million tons, The Moscow Times reported.
Former Finance Minister Alexei Kudrin has warned that sanctions
will cost Russia 1 percent of total GDP, which could send the
economy into a recession, and lead to a 3-4 percent economic
drop.
In the worst scenario, if Russia is cut off from the SWIFT
international banking payment system, Kudrin predicts a 5 percent
drop in GDP.
Article source: http://rt.com/business/190628-sanctions-gdp-russia-oil-price/
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