Putin Says Russia Preparing for ‘Catastrophic’ Oil SlumpStepan Kravchenko and Henry Meyer
President Vladimir Putin said Russia's economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices.
Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said.
Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter. Even the central bank’s forecast of zero growth next year may be in danger as the International Energy Agency forecasts a deepening rout in oil prices as the market enters a period of weaker demand.
Brent crude, the grade traders look at for pricing Russia’s Urals main export blend, has collapsed into a bear market as leading members of the Organization of Petroleum Exporting Countries resisted calls to cut production and U.S. output climbed to the highest level in three decades because of the shale boom.
Brent is heading for its eighth weekly decline after sliding below $80 for the first time in four years. Futures were at $78.29 a barrel in London today, down 6.1 percent this week and 29 percent this year.
Oil consumption will slide by about 1 percent to 92.6 million barrels a day in the first quarter from the current three-month period, the IEA, a Paris-based adviser to 29 nations, said in a monthly market report today.
Declining export revenue from oil and natural gas and the central bank’s attempts to shore up the ruble are threatening to exhaust public finances. The non-oil deficit exceeds 10 percent of economic output at a time when the central bank’s defense of the ruble has cut reserves by a fifth from last year’s peak. Still, the currency’s slide helps compensate to an extent as foreign-currency is converted into a larger amount of rubles for the budget.
With $421 billion in international reserves, Russia has a “big enough” buffer to meet all social commitments and maintain budgetary and economy stability, Putin said. The value of the stockpile last week extended its slide to the longest since 2008 as the monetary authority attempted to smooth the ruble’s decline.
“A country like ours finds the situation easier to cope with,” Putin said. “Why? Because we are producers of oil and gas and we handle our gold and currency reserves and government reserves sparingly.”