Yuri Kobzar20:17, 01/17/24

In a year or two, Russia may completely lose everything it has earned over 20 years of wild oil and gas super-profits.

The war against Ukraine is rapidly depleting Russia’s strategic financial reserves, which had been accumulated over the previous two decades. The so-called “National Welfare Fund” (NWF) has lost almost half of its highly liquid reserves over the two years of war, writes Bloomberg .

It is noted that the highly liquid part of the National Welfare Fund, which consists of monetary and investment assets, amounted to 5 trillion rubles ($56.5 billion) at the end of last year, compared to 8.9 trillion rubles before the full-scale invasion. 

The rest of the National Welfare Fund, consisting of less liquid assets (shares of Russian companies, bonds, etc.), grew by more than 2 trillion rubles. Now the low-liquid part of the National Welfare Fund prevails over the high-liquid part, although before the invasion the situation was radically opposite.

“The overall size of the National Welfare Fund looks completely unimportant now, since a significant part of it was invested in Russian stocks and infrastructure – essentially illiquid investments. Only liquid investments can be considered as reserves for a rainy day, the rest is lost,” explained Oxford Economics economist Tatyana Orlova.

The main source of filling the National Welfare Fund were excess profits from the export of oil and gas, but now, against the backdrop of Western sanctions, these profits have decreased and are not enough even to meet current budget needs.

According to Russian economist Alexei Isakov, unless world oil prices begin to rise sharply due to events in the Middle East, the balance of highly liquid assets of the Russian National Welfare Fund will continue to decline, making Russia increasingly vulnerable to shocks. According to his calculations, Russia will completely spend its cash reserves in one to two years if the export price of Russian oil falls below $50.

According to the Russian Ministry of Finance, the average price of the main Russian oil Urals fell by 17% last year and amounted to $63 per barrel. Bloomberg predicts that the Russian National Welfare Fund will continue to deplete this year if the price of oil does not exceed $73.

The situation on the global oil market

As UNIAN wrote, oil prices reached $80 per barrel due to the activity of the Houthis, who were able to actually block commercial shipping in the Red Sea. To suppress terrorist activity, the United States and Great Britain launched air strikes against Houthi targets.

We also told you that the development of new wells is growing in Russia , despite Western sanctions against Russian energy. Experts consider this a sign that the sanctions were weak.

(C)UNIAN 2024