The Russian budget is under strain, with the price of oil falling to $45 a barrel
The price of Urals crude, the main export grade for Russian oil producers, has fallen to $44.96 per barrel.
According to Bloomberg, citing Argus, Urals has fallen by 40 per cent since the start of June. Compared with the peak prices seen during the crisis in the Strait of Hormuz, the price has fallen by a factor of 2.5. In April, Russian crude was selling at $115 per barrel with no discount to Brent.
The Far Eastern ESPO grade is priced at $61.27 per barrel. At the same time, its price has fallen by 20 per cent since the start of June and by 36 per cent compared with the start of May. Both grades have returned to early March levels.
Against the backdrop of falling prices, oil companies’ revenues are declining. Although export volumes have risen to a record 4.13 million barrels per day due to refinery shutdowns, export revenue has fallen by a third compared with May and now stands at $1.9 billion per week.
Andriy Zatsepin, an analyst at Alor Broker, believes that the fall in oil prices could exacerbate Russia’s budgetary problems, the consequences of which may become apparent as early as August and September. According to Bloomberg’s calculations, the average price of Urals crude in June was $62 per barrel, whilst current prices are already around a quarter lower than the level factored into the budget.
According to the Russian Ministry of Finance, oil and gas budget revenues fell by 30 per cent in January and May, whilst the deficit reached 6 trillion roubles.
Analysts at Gazprombank estimate that by the end of June, the budget deficit had risen to 6.4 trillion roubles. This is almost double the annual target of 3.8 trillion roubles.
The Washington Post quotes a current Russian official as saying: “The budget is crumbling. The deficit is huge, and the National Welfare Fund is almost depleted.”
As of 1 June, the National Welfare Fund had 3.4 trillion roubles in liquid assets remaining. Since the start of the year, this reserve has shrunk by 600 billion roubles. Compared with pre-war levels, the volume of liquid assets has fallen by almost three times. As of 1 February 2022, the fund held 8.8 trillion roubles.
To cover the shortfall, experts estimate that the Russian authorities may resort to increasing the money supply. Furthermore, following the State Duma elections in September, the adoption of additional fiscal measures cannot be ruled out.
According to Bloomberg, the Russian Ministry of Finance needs to find a further 4–5 trillion roubles in additional funding. This is precisely by this amount that military spending this year may exceed initial plans.
The agency’s sources claim that the government is considering cuts to civilian budget expenditure, as well as additional borrowing of 2–3 trillion roubles.
