Page 65 - Russia OUTLOOK 2023

In the first month of 2022, oil prices remain relatively low ($80 per barrel of
Brent), and Russian Urals, according to Bloomberg, is even below $40. Such a
price environment threatens the budget in 2023 with even more serious
problems.

The Russian budget deficit in 2022 amounted to RUB3.3 trillion, or 2.3% of
GDP, Finance Minister Anton Siluanov said. This is RUB400bn, or 0.3% of
GDP, more than the ministry predicted over a month ago, on December 12. At
the end of September, the forecast was even more optimistic (RUB1.3 trillion,
or 0.9% of GDP).

The most obvious explanation for such a sharp expansion in the hole in the
Russian budget is the fall in budget oil revenues in December. There are no
official data on oil and gas revenues for December, but their decline was
inevitable due to the collapse in Russian oil prices against the backdrop of the
EU oil embargo coming into force on December 5.

As the Ministry of Finance itself reported on January 5, in December 2022,
Russian Urals oil cost an average of $50.47 per barrel, 1.4 times cheaper than
in December 2021 ($72.7) and 1.5 times cheaper than the average in 2022
($76.7).

However, according to Alexander Isakov, chief economist at Bloomberg
Economics for Russia, the budget revenue for the year was close to the
September forecasts of the Ministry of Finance. On the other hand, the
expenditure part rose significantly, by RUB2.1 trillion, and RUB1.3 trillion of this
addition fell on “other expenses”, behind which the articles “national security”
and “national defence” are hidden.

The first month of the European embargo on Russian oil has not yet been
marked by an increase in world prices: a barrel of Brent now costs the same
$80 as in early December. At the same time, Russian oil continues to get
cheaper: on January 6 a barrel of Urals in the port of Primorsk in the Leningrad
Region was sold at $38 – half the price of a barrel of Brent on the same day. In
December, the Urals discount to Brent remained at the level of 30-35% – this
was already an unprecedented figure, but it did not reach 50%.

The budget for 2023 was drawn up with the same deficit as in 2022, a deficit of
2% of GDP and an average annual price of Urals of $70.1 per barrel.

The level of budget problems will depend not only on the price of oil, but also
on the volume of production. The Ministry of Finance included several
scenarios in its forecast for 2023: with a price of $50 for Urals that has already
arrived in December, and a decrease in production to a very possible 9mn bpd
from a peak of 11mn bpd pre-war, this means oil and gas revenues for 2023
would amount to RUB6 trillion, RUB2 trillion below the plan and twice as much

65 Russia OUTLOOK 2022 www.intellinews.com