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Russia Can Live With $25 Oil For Years

After oil prices collapsed in the worst drop in nearly three decades—courtesy of the renewed Saudi-Russia rivalry on the oil market – Russia’s Finance Ministry said on Monday that Moscow had enough resources to cover budget shortfalls amid oil prices at $25-30 a barrel for six to ten years.  

The price of the Russian export grade Urals dropped to below $42.40 a barrel on Monday as oil prices tumbled by 30 percent after Saudi Arabia launched an all-out price war with Russia following the collapse of the OPEC+ group with the ‘no deal’ outcome of talks on Friday.  

The $42.40 Urals price is the price at which Russia’s budget is balanced, the Russian Finance Ministry said on Monday, noting that the country’s sovereign wealth fund, the National Wealth Fund (NWF), had as of March 1 liquid assets worth US$150.1 billion, or 9.2 percent of Russia’s gross domestic product (GDP).  

Those assets are enough to compensate for lower oil revenues due to the drop in oil prices, the finance ministry said. Even if oil prices were to stay at $25-30 for a long period of time, the NWF has enough liquidity to maintain the macroeconomic and financial stability of Russia’s economy, the finance ministry says.  

The liquidity at NWF is enough to compensate for oil prices at $25-30 for six to ten years, it added.

It was the OPEC+ deal that has brought significant economic benefits to Russia, which saw its NWF double its financial reserves to US$124 billion in 2019, Kirill Dmitriev, chief executive at the Russian Direct Investment Fund (RDIF), said in January this year.

Some analysts argue that the oil price war will end up hurting Russia’s economy much more than Vladimir Putin would like it to. Others, such as Chris Weafer, founding partner at Macro-Advisory consultancy in Moscow, say that Russia has what it takes to win the oil price war with the Saudis.

“Moscow is unlikely to blink first, certainly not for another three to six months,” Weafer said, as quoted by AFP’s Anna Smolchenko. 

By Tsvetana Paraskova for Oilprice.com

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  • Lee James on March 09 2020 said:
    As an average citizen looking at the oil-pricing bet Russia has placed, I had to take a look at what the Russian National Wealth Fund is all about. It has a couple of different revenue streams. It seems to be primarily funded by oil and gas export sales. The Fund is used quite a bit to co-pay retirement pensions.

    Russia indeed is least sensitive to low oil prices in order to balance the national budget. I'm left wondering if Russia will continue to spend on defense and world entanglements, and possibly end up dipping too heavily into pension funds. Citizen discontent has been rising.
  • David Chura on March 09 2020 said:
    So what if Russia can survive with a 25 dollar a barrel for oil
    So can the rest of the world, and it would bring down the cost of travel for the rest of us, And it just goes to show how much extra profit these oil companies actually don't need
    While they been stealing from us poorer people.

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