Russian macro: balance of payments undergoing radical change
As the group of “unfriendly” countries is working hard to prepare the mechanism that could impose a price cap on Russian oil exports and is trying to convince other countries to join their club, it is worth looking at Russia’s balance of payments and consider its possible evolution. It looks as though the structure of the country’s balance of payments will change in any case, i.e., irrespective of whether the “unfriendly” enthusiasts succeed in imposing a price cap or not. Moreover, the balance of payments will evolve in the same way – be it with the cap or without it. A kind of a price cap on Russian oil has appeared organically as the spread between Urals and Brent widened after Russia’s conflict with the West reached a point of no return as the former moved troops into Ukraine. The price gap fluctuated around $35/bbl in 2Q22.
In 7M22, the current account surplus was already much higher than in any full year previously. In 2022 as a whole, the current account surplus may exceed $200 bln as combined imports of goods and services are likely to be lower than in 2021 by $50 bln to $60 bln. Exports of natural gas and crude oil accounted for around one-third of Russia’s total exports in 2021 as total exports accounted for 27.8% of GDP, while crude oil and natural gas – 9.4% of GDP. If Russia cuts its exports of crude oil and natural gas by one-half in volume, and Russia’s total exports then fall by a few percent of GDP, it will still have a significant trade surplus. Even though it is just a theoretical exercise it shows that in 2022 Russia has even greater room for maneuver amid suppressed imports. With reduced imports of goods and services in 2022 and beyond, Russia can cut even more of its energy exports and will do so eventually, irrespective of whether the price cap on oil is imposed or not, as the country needs a much weaker ruble to let the rest of the economy survive and eventually start growing. The country will no longer need to invest in the exploration of new oil and gas fields as much as in the past as it will need primary energy resources just for domestic needs and exports to “geopolitically neutral” jurisdictions.
Now read on...
Register to sample a report