Russia Monitor is a review of the most important events related to Russian internal and external security, as well as its foreign policies.
Date: 21 December 2022 Author: Grzegorz Kuczyński
Russian Economy Is Now in Far Better State than Expected
The Russian economy has somewhat performed well throughout 2022 and experienced the aftermath of energy sanctions only in November. Officials and analysts have been gradually improving GDP forecasts for the full year, but suggested that the overall drop in output may be more prolonged. Gross domestic product fell 0.9 percent, according to September estimates, but now it could be 2 percent. The key story for the Russian economy in the coming months could be the launch of the EU’s oil embargo mechanism from Dec. 5 and the imposition of a price cap on Russian oil.
The Russian economy shrank by 1.9 percent instead of 2.1 percent from January to October 2022, according to the Russian economic development ministry. Perhaps the ministry will align its outlook for 2022 with the newest figures. The economy ministry expects Russia’s gross domestic product (GDP) to fall 2.9 percent this year, up from 4.2 percent in August and 7.8 percent in May. After initially dire predictions of a GDP slump, the Russian economy demonstrates better-than-anticipated resilience, mostly to the situation in the oil and gas sector. There was an almost scarce effect of sanctions imposed on Russia in the first months of the war as the country earned more despite shrinking export volumes due to rising energy prices. Yet as soon as this fall, Russia saw a sharp drop in its oil and gas revenues. In November, oil and gas revenues fell 2.1 percent from last year; however, in reality, almost half of that sum came from a one-off payment of Gazprom’s mineral extraction taxes. The company secured these funds because it had refrained from paying out dividends to its shareholders. Without that money, oil and gas income was down 48.9 percent compared with 2021, according to the Russian website Bell. Revenues from Russian exports to the EU were down roughly 83 percent in November after cutting off supplies into the EU and Nord Stream 2 sabotage. Russia is unlikely to regain profits by redirecting flows into Turkey or China amid infrastructure shortages and lower prices than in Europe. Oil prices drop globally, but there is a 30 percent price gap between Brent crude and cheaper Russian Urals oil whose prices keep going down. It traded at more than $70 per barrel in October and just $50 per barrel in mid-December. The Russian budget paper assumes that the average price of Urals oil in 2023 will be $70.1 per barrel. Russia’s finance ministry has significantly cut expectations of oil and gas revenues, predicting a 23.3 percent drop from 2021. The question remains whether the economy ministry has to review its outlook amid restricted export figures following the EU oil embargo. The economy faces additional headwinds from an oil price cap imposed by Western nations this month and a European Union embargo on its seaborne oil exports, in force since December 5. The Russian economy could hit the rock bottom amid new EU sanctions. The EU’s ninth package has targeted three Russian banks that either collaborate or are controlled by Russia’s biggest oil company Rosneft.
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