The river of energy super-profits that flowed into Russia throughout 2022, supplying the budget with money for the army, and business with currency for importing goods, has more than halved.
Compared to levels before the invasion of Ukraine, the income of the Russian economy from oil and gas exports decreased by $500 million a day, Deutsche Bank analysts calculated.
The inflow of oil revenue, which was $500-600 million daily, fell to $300 million a day, along with prices for the Russian grade Urals, which oil companies sell at more than 40% discounts to Brent.
Against the backdrop of Western sanctions, which include an EU embargo and a “price ceiling” from the G7 countries, the cost of oil of Russian origin has fallen by almost a third. According to the Ministry of Finance, the average price of Urals in January and December fell to $50 per barrel, although in October it was $79.5, and in the summer months – above $80.
The gas revenues of the economy fell even more significantly. The physical volume of deliveries to Europe – the once largest sales market of Gazprom – last year fell to a minimum since the late 1980s: out of 2.5 billion cubic meters per week, only 500 million remained. As a result, Russia earns $ 50 million a day from gas exports against $300 million on average for the period from August 2021 to August 2022, according to Deutsche Bank calculations.
“The era of windfall in the oil and gas market is over for Russia,” says Janis Kluge, an economist at the German Institute for International and Security Affairs. This poses a threat to the budget, which received a deficit of 3.3 trillion rubles last year, and this year it has been drawn up with a “hole” of 3 trillion rubles.
At the beginning of 2023, according to the Ministry of Finance, the oil and gas revenues of the treasury sank by 47% year-on-year, non-oil and gas – by 28%, and the monthly deficit – almost 1.8 trillion rubles – became a record for January over the past 25 years.
To close the deficit, the Ministry of Finance sold 3.6 tons of gold from the National Wealth Fund for the first time in history, and also “printed out” the last available foreign exchange reserves that are not subject to Western sanctions – this is 310 billion Chinese yuan from the NWF. In January, the Ministry of Finance and the Central Bank sold 54.5 billion rubles worth of yuan on the stock exchange, and in February they will triple this amount to 160.2 billion rubles.
The coming year “will be a real test” for the Russian economy, says Tim Ash, Senior Fellow for Russia and Eurasia at Chatham House. A ban on the supply of petroleum products to the EU has been added to the oil embargo since February 5. And it will be much more difficult to attach them to Asia, even with discounts: India and China have their own network of refineries and prefer to buy crude oil in order to process it on their own, the analyst warns Bruegel Ben McWilliams.
As a result, Russia will have to reduce production, experts are unanimous. The government has already announced a voluntary cut of 500,000 barrels per day since March, but this is only the beginning, according to the International Energy Agency and OPEC. According to their estimates, oil production by the end of the year will drop by 8-10%, to 9.9-10.1 million barrels per day.
PSB analysts paint an even bleaker picture: the oil industry will be forced to cut production by 18% to 8.8 million bpd, the lowest since the early 2000s.
