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Bloomberg: Russia could have record revenues if oil and gas continue to be exported

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Bloomberg Economics predicts that Russia will receive nearly $ 321 billion in energy exports this year, up more than a third from 2021. The state is also projected to have a record trade surplus that the International Financial Institute says could reach $ 240 billion.

“The biggest factor in Russia’s current trade surplus continues to be solid,” IFI economists led by Robin Brooks said in a report. “With the current sanctions in place, substantial inflows of foreign currency into Russia appear to be continuing.”

The calculations could change completely, however, in the event of an embargo on energy sales. Even without an embargo, Russia’s oil exports are already falling, with the International Energy Agency predicting that it could lose almost a quarter of its crude oil production this month.

Many of the country’s traditional customers are looking to buy elsewhere and choose not to sign new contracts with Russian suppliers, in the context of the widespread condemnation of President Vladimir Putin’s aggression. Others, such as India, enjoy large import reductions.

The invasion of Ukraine has forced Germany and its EU allies to radically change their energy policy, and the EU bloc wants to cut its dependence on Russia. At the moment, Europe’s largest economy is opposed to sanctions or political pressure that could put a complete embargo on energy. Only a few countries – including the United States and the United Kingdom – have imposed concrete bans on imports from Russia.

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Oil and gas accounted for nearly half of Russia’s exports and accounted for nearly 40 percent of last year’s budget revenues.

The combination of a sharp ruble depreciation and a higher dollar price for oil will generate an additional $ 103 billion in this year’s budget revenue, according to TS Lombard.

Although energy supplies have fallen, the shock to imports and domestic demand will be so severe that the current trade balance, the largest measure of trade and services, could reach a new all-time high after a record $ 120 billion a year. last.

Goldman Sachs, whose growing trade surplus this year is reaching $ 205 billion, says it may be enough for Russia’s central bank to cover private sector demand for foreign currency and eventually allow it. to relax control over capital.

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With inflation shocks and declining revenues already hitting Russian consumers, Goldman Sachs economists predict a 20% drop in imports in 2022, double the expected decline in exports.

But a healthy trade balance will not save Russia from a deep recession, but will help support government spending at a time when the government does not have access to international capital markets. TS Lombard analysts say the ruble exchange rate is supported by current inflows into the country, as sanctions have frozen much of the central bank’s foreign exchange reserves.

Russia’s ability to sell oil and gas abroad may be the only thing holding back the economy from collapsing into an even bigger financial collapse.

IFI, an association of the world’s largest financial institutions, says an energy embargo imposed by the EU, Britain and the United States would reduce production by more than 20% and could cost Russia up to $ 300 billion. of dollars entering the economy from exports, depending on price fluctuations.

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