The recent surge in the oil price will deliver a much-needed
boost to the Russian economy but will not be enough on its own
to eliminate the countrys large budget deficit,
economists have told Emerging Markets.
Crude prices have spiked by 16% over the last month,
breaking through the $60 a barrel mark as rising optimism among
investors about a global economy recovery has driven up
Russia is a key exporter of oil and gas and the energy
sector makes up between 22% and 24% of its economy, according
to Michael Ganske, chief emerging market economist at
Commerzbank. A price of $60 to $70 a barrel is quite
supportive and would break even the current account, he
told Emerging Markets.
It is not like the fantastic cash flow that we saw
last year when prices went to $150, but it is supportive for
the economy at a time when we expect a severe recession with
GDP contracting 4.9% this year.
He said Kazakhstan and Turkmenistan would benefit as net
exporters although other countries would be hurt by higher
energy costs. But indirectly this will be supportive for
the entire region because Russia is a major economy and if it
stabilises sooner rather than later it will take pressure off
The IMF expects Russia to contract by 6% this year while
yesterday the Institute for International Finance warned GDP
could shrink as much as 8.7%.
Natalia Orlova, a senior analyst at Alfa Bank in Moscow,
said Russia was facing a fiscal deficit of R3 trillion ($93.7
billion) this year. A sustained oil price of $60 a barrel would
reduce that by R1 trillion. The oil price would have to
go back to $90 a barrel for Russia to be in surplus, she
told Emerging Markets.
She warned increased revenues from oil exports would be
offset by a decline in revenue from other areas. You
might see substantial declines in VAT because foreign VAT,
which reflects tax collection from foreign trade, reflects the
significant 40% decline in imports, she said.
Analysts have been surprised by the rise in oil prices.
Eugen Weinberg, a commodity analyst at Commerzbank in
Frankfurt, said he had expected prices to reach $70 by year
It has been too fast and furious, he told
Emerging Markets. I think it is unjustified as it is
mostly based on euphoria and optimism about the recovery in the
world economy. Wednesdays unexpected 0.4%
contraction in US retail sales in April triggered a 1.4% in oil
prices to $58 a barrel. This is about sentiment and
people are looking for hard facts, Weinberg said.
The IEA, which yesterday cut its annual global oil demand
projections for 2009 by another 200,000 barrels, expects a
decline in global oil demand of 2.6m barrels a day.