Russia: Economic Burdens Lessen With Oil Above $40

Russia needs clear economic policies to prevent shocks from oil prices, though stability is expected at $40 per barrel, a development minister said.

The Central Bank of Russia in late December reported a net contraction for full-year 2016, though the level of decline was less severe in the latter half of the year. The oil-dependent economy faced dual strains from the low price of oil and economic sanctions, but Russian Minister of Economic Development Maxim Oreshkin told business daily Kommersant the situation is improving as crude oil prices increase, UPI reported.

Russia is party to a plan outlined by the Organization of Petroleum Exporting Countries to curb production. The move is meant to offset the supply-side strains that pulled oil prices below $30 in early 2016.

“The approved three-year budget demonstrates that under the conservative scenario for the next three years with oil prices of $40 per barrel public finance will be stable without extra tax burden,” the minister said. “The key task of the economic policy is not in trying to guess about the situation on oil markets but in having a clear set of steps in case of any, even the most, uneasy external conditions.”

Russian President Vladimir Putin said the national budget for 2017 was pegged on oil priced at around $40 per barrel. The price for Brent crude oil, the international benchmark, was around $56 per barrel in early Monday trading.

Herman Gref, the CEO at Sberbank, one of Russia’s largest banks, said the nation’s economy was resilient enough to handle a moderate downturn in crude oil prices.

Despite agreed cuts, OPEC said it expects Russia to produce an average 11.1 million barrels per day this year, against the estimated 11.05 million bpd for 2016. Russia has a poor track record of compliance with managed declines, though Putin’s personal involvement in the sector could show the country is serious about bringing the market back toward balance.

In October, Moody’s Investors Service revised its outlook for Russian banks to stable from negative on signs of emerging recovery.