The Russian currency, the ruble, lost about ten percent of its value during trading Monday morning as the price of crude oil on global markets collapsed as Saudi Arabia and Russia plan to flood the market with product.
Russia relies on crude oil revenue for around 50% of its federal budget. The Russian economy is also heavily dependent on hydrocarbon production.
The currency was trading around 74 to 1 USD during Monday’s trading.
Russia’s Finance Ministry confirmed Monday it would sell foreign exchange reserves in a bid to stabilize the ruble, adding: “The value of liquid assets of the NWF and funds in the account for additional oil and gas revenues stand at more than 10.1 trillion rubles ($150 billion) or 9.2% of GDP. These funds are sufficient to cover the shortfall in income from falling oil prices to $25-30 per barrel for 6-10 years,” reported The Moscow Times.
“Russia is in a better position to fight this one than it used to be. Financial reserves are $570 billion — or almost $100 billion more than Saudi [Arabia]’s. Russia also has the flexible currency policy and will allow the rouble to fall into the mid-70s versus the dollar,” said analysts at consultancy firm Macro Advisory.
Russian oil producers were prepared for a breach in relations with OPEC and expected a price decline to $32 per barrel and below, a high-ranking source in the sector, who participated in drafting Russia’s position on the talks with OPEC, told Russian state news agency TASS, adding that such a possibility provides the country “with opportunities that should be correctly estimated.”
“Yes, calculated. It is normal practice to consider scenarios,” he said when asked whether the Russian side had calculated the possibility of an oil price drop to $32 per barrel and below. Companies may start boosting output earlier than April, the source added. “Possibly earlier,” he said.
The current situation provides the country with “opportunities that should be correctly estimated,” the source said. “It is necessary to rely on most efficient projects,” he added. Another top-ranked official confirmed to TASS that such an outcome of talks with OPEC was considered, wrote TASS.