Russia said on Thursday it had added the equivalent of $9.4 billion to its government emergency reserve fund, with the money coming from extra oil and gas revenues the country has received so far in 2022.
The Russian government can easily tap the rainy-day fund and has been actively doing so since the invasion of Ukraine and the Western sanctions that have crippled the Russian economy and sent inflation to double-digits and the highest reading in over two decades.
Russian oil and gas revenues, however, continue to flow and exceed earlier budget projections, because the war in Ukraine sent oil and gas prices soaring. The EU, the U.S., and the UK aim to cut the oil money flows to Russia via embargoes and bans.
The heaviest hit, the EU’s latest sanctions package, bans Russian seaborne oil imports within eight months and also prohibits EU insurers from providing insurance for Russian oil going anywhere in the world. This insurance ban could be the knockout blow to Russian oil exports, as it would cripple Russia's ability to export crude anywhere in the world, analysts say.
The market will see a dramatic shift with this ban, within a six-month wind-down period, but until then, oil money is flowing to Russia at high rates.
Russia expects to receive as much as $6.37 billion in additional oil and gas revenues in June, its finance ministry said last week, as energy commodity prices have rallied since the Russian invasion of Ukraine.
While oil revenues are flowing, the Russian economy is tanking because of the Western sanctions, the double-digit inflation, and the significant reduction of consumers’ purchasing power.
Last month, the federal Russian government said it would increase minimum wages and pensions from June 1 as it seeks to counter the effects of double-digit inflation closely linked to Western sanctions. A host of Western companies have left as a result of the sanctions as well as due to reputational pressure, contributing to the adverse effect of the sanctions on Russia.
By Tsvetana Paraskova for Oilprice.com
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