The easing of tensions in Ukraine will offer little respite to Russia as the lowest oil prices in more than two years threaten to tilt the $2trillion economy toward recession, according to a Bloomberg survey of analysts.
Russia needs Urals, its main export crude blend, to trade at $100 per barrel or higher to avoid a recession, according to 58% of respondents in a survey of 19 economists. Given the level of US and European sanctions over Ukraine, at least 19 percent of analysts said the current price is sufficiently low to put Russia’s financial stability at risk.
The decline in oil prices is exacting a toll on the world’s biggest energy exporter, which gets about half of its budget revenue from oil and natural gas taxes. That’s limiting Russia’s ability to withstand sanctions by exhausting public finances as the non-oil deficit, the shortfall excluding revenue from the energy industry, exceeds 10% of economic output.
“Even if the oil price should recover to low three-digit prices again, Moscow’s hands are rather tied — the budget is already ailing and the potential funding needs of the banking system could quickly eat up all free resources,” Wolf-Fabian Hungerland, an economist at Berenberg Bank in Hamburg, said by e-mail. “And its rainy day fund is just too small to be a game changer.”
Three years ago, the Economy Ministry estimated that only a plunge of oil prices to $60 would halt Russia’s expansion.
Futures of Brent crude, used to price about half of the world’s oil including Urals, declined about 16 percent from this year’s high in June to a two-year low on Sept. 15. The contract for November settlement was little changed at $96.97 a barrel on the ICE Futures Europe exchange at 11:16 a.m. London time, heading for its third weekly loss this month.
Global oil-demand growth is the slowest since 2011, while the US shale boom means oil production outside OPEC is rising by the most since the 1980s, according to the International Energy Agency.
Urals prices fell below $100 a barrel on Aug. 18 and averaged $98.28 from Aug. 15 to Sept. 14, according to Russian Finance Ministry adviser Alexander Sakovich. This was the first time the average price for such a four-week period was below $100 a barrel since June 2012, according to the ministry.
“The non-oil deficit is likely to remain persistently high — above 10 percent of GDP,” the World Bank said in a Sept. 24 report. “Given the commitment of large parts of Russia’s fiscal buffers to growth-stimulation and other measures, Russia’s fiscal position is becoming even more tightly linked to oil revenues and global oil price trends.”
The budget for next year is based on a price of $96 per barrel, Maxim Oreshkin, head of strategic planning department at the Finance Ministry, said Sept. 16.
The government predicts the budget will run a deficit of 0.6% of gross domestic product in 2015.
A $1 drop in the price of oil deprives the budget of about 80billion rubles ($2.1billion) in revenue, according to Oreshkin, while a 1 ruble increase in the dollar’s exchange rate boosts income by about 200billion rubles.
Russia’s dependence on oil grew “sharply” in 2013, First Deputy Finance Minister Tatiana Nesterenko said Sept. 12 on Facebook. The non-oil deficit grew to 10.3% of GDP in 2013, the highest since 2010, showing “Russia is dependent on external factors” she said.
The budget squeeze threatens to exacerbate the economy’s worst performance since a 2009 recession. GDP will expand 1% in 2015, according to the median estimate of 36 economists in a separate Bloomberg survey, down from 1.3% predicted last month.
The probability of a recession within the next year decreased to 60% from 65% last month, according to the median estimate of 27 economists.
The standoff over Ukraine has also spurred capital flight, undercut the ruble and choked access to credit abroad. The ruble has lost more than 14% against the dollar this year, the second-worst performer among 24 emerging-market currencies tracked by Bloomberg.
“Russia can go into recession even with Urals at $110 a barrel if Russian borrowers remain cut off from world capital markets for a long time,” said Tatiana Orlova, economist at Royal Bank of Scotland in London.
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