"The Serious Fever": Pros and Cons of $ 120 Oil for Russia

Sergey Kondratiev, Deputy Head of the Economic Department of the Institute for Energy and Finance, commented to Gazeta.ru, on the consequences to be caused by extremely high oil prices.

Bank of America analysts predict that oil prices could rise to $ 120 per barrel by the summer of 2022. Experts note that this would bring billions of dollars to the Russian budget. But there are also obvious risks - buyers can switch to alternative energy sources.

According to Sergey Kondratiev, the scenario of a rise in oil prices to $ 120 under the current conditions cannot be ruled out. However, for Russia, the main problem in this situation will be the impossibility of maintaining the demand for the natural resource.

“Sharp fluctuations in the oil market will create an additional incentive for consumers to switch to alternative energy sources. This may be an insignificant factor on the horizon of several months, but in the context of 2-3 years it will lead to a sharp reduction in budget receipts,” Kondratiev explained.

According to him, tax pressure will grow, which, in turn, will lead to an increase in the cost of final petroleum products.

“With the current oil prices in the region of $ 80-85 per barrel and the ruble exchange rate of 70-72 per dollar, Russia manages to compensate the costs of gasoline producers with the help of damper surcharges. At $ 120, this will be much more difficult. If we see a “perfect storm”, when oil quotes jump up sharply and the exchange rate is weak, then ruble fuel prices will become very high,” Kondratiev explained.

According to the expert, the benefit from a sharp rise in oil prices will be short-term for Russia. At the same time, even during this time, oil and gas budget revenues can grow by 350-360 billion rubles a month, including by 300 billion rubles due to an increase in the severance tax and by 50-55 billion rubles - due to an increase in revenues from the export duty on oil and petroleum products.