BofA Sees Weaker Ruble Mitigating Iran-Spurred Oil Swings

Potential economic risks to Russia triggered by oil-price volatility in the aftermath of Iran’s nuclear accord will be mitigated by the ruble, according to Bank of America Corp.

Though the country will ultimately be a “net-loser” of the deal, “further ruble weakness should continue to re-balance Russia’s current account and fiscal balances, which should help limit the negative impact on the broader economy,” Vladimir Osakovskiy, the chief Russia economist at Bank of America in Moscow, said in an e-mailed note.

Iran and six world powers on Tuesday sealed a historic deal to curb the Islamic Republic’s nuclear program in return for ending sanctions. While Russia is set to suffer from Iran’s future supplies of energy resources to Europe, Moscow’s key export market, “ruble flexibility will continue to help absorb external shocks” and energy cooperation between the two countries could offset some of the negative impact, Bank of America said.

The surplus on Russia’s current account, which is the broadest measure of external trade, rose 58 percent from a year earlier in the second quarter to $19 billion, the central bank said last week. President Vladimir Putin said in June that a weaker currency is helping producers struggling amid a recession, as the government runs out of options to counter a deepening slump.

Russia, which gets about half of its budget revenue from oil and natural gas sales, is facing its first economic contraction since 2009 after energy prices fell and international sanctions over Ukraine curbed financing.

The ruble weakened 0.6 percent to 56.741 against the dollar by 2:41 p.m. in Moscow on Wednesday, while Brent crude declined 0.9 percent to $58.01 a barrel. The yield on five-year government bonds slumped 23 basis points to 10.75 percent, the lowest since May 26.