"There's no big price drop in the budget." What threatens Russia with cheap oil

Marcel Salikhov, President of the Institute for Energy and Finance, gave an interview to RTVI on the dynamics of Russian oil prices and possible damage to the budget.

What affects the price of Russian oil

There are several factors. First, oil prices, not only Urals, but also Brent, are declining. At the moment, Brent is trading at $83-84, while in November its price was about $100 per barrel. In fact, in 2.5 months the price of this brand of oil decreased by 20%. Prices of other commodities are also declining, a general global factor, apparently due to concerns about the global economy and lower demand.

Urals is under additional pressure due to the embargo of the European Union countries and the oil price ceiling, which was introduced from December 5th. The embargo, in my opinion, is the main factor.

We'll see what happens in January. Apparently, we are waiting for a drawdown in exports. As companies find new routes and schemes, it will continue - this was the case in the spring of last year, and after the introduction of the coal embargo. Recovery may begin from March-April, because on February 5 an embargo on oil products will be introduced, and additional difficulties will also arise for them.

How profitable is it to produce Urals oil?

It's a difficult question. In 2020, Urals was trading at $20, there were even quotes at $17, while oil production continued.

There are several components to the current situation. First of all, these are taxes, with the payment of which a significant part of the costs is connected. These are MET (mineral extraction tax) and export duty, but now it is still mostly MET. Its formula depends on the price of oil. As the price of oil decreases, it is corrected, and from a certain threshold it is reset to zero, and the state does not receive anything from the sale of oil. This is done so that companies still sell it and can earn money, which means that production does not stop.

How the low price of oil will hit the Russian budget

I think that while the situation is unpleasant, but not critical. It is not worth considering that there will not be enough money for salaries and pensions this year.

For example, in 2022, oil and gas budget revenues amounted to 11.5 trillion rubles, and total expenditures, according to the publication of the Ministry of Finance, amounted to 31 trillion rubles. The budget for next year was adopted based on the fact that oil and gas revenues in 2023 will decline and amount to about 8 trillion rubles, that is, 3.5 trillion less. Now the Russian Ministry of Finance is beginning to sell its accumulated yuan and, in fact, partially finance the deficit, including through accumulated and unblocked foreign exchange reserves.

Perhaps, in some bad scenario, this figure will drop to 7 trillion, but different mechanisms can come into play here: an increase in domestic debt, the sale of reserves, the devaluation of the ruble, and so on. Therefore, in the horizon of one or two years, this situation is not critical. But if prices for Urals stay around $30-40 for five years, then yes, then a lot of things will have to be reconsidered.