Oil at $40 Seen Less of a Blow to Russia as Economy Adjusts

Eleven months of surviving with oil below $100 have left Russia hardened enough to endure a monthlong drop to $40 a barrel, a survey of economists showed.

Crude at that level will push the economy to a contraction of 5 percent this year and 1 percent in 2016, before it rebounds to 0.8 percent growth in 2017, according to the median of 20 estimates. The central bank said in June the economy will shrink every year through 2017 if oil remains at $40.

The ruble’s crisis last year underscored the vulnerability of the world’s biggest energy exporter to slumping oil, which together with gas accounts for about half of budget revenue. The latest forecasts reflect Russia’s move to loosen its reins over the currency and allow consumer demand to absorb the shock of last year’s collapse.

“During the first half of 2015, the economy has already adjusted to some extent to a weaker oil-price environment,” Oleg Kouzmin, a former central bank adviser who’s now an economist at Renaissance Capital in Moscow, said by e-mail. “So the continued contraction in oil should not hurt it as much as a direct drop from $100 to $40.”

If oil drops to $40, the authorities will limit their response to an emergency interest-rate increase, avoiding harsher measures such as capital controls and the state takeover of banks, a majority of economists said.

Urals, Russia’s chief export blend, averaged almost $59 a barrel June 15-July 14, compared with $62.17 a month before, according to the Finance Ministry. The price may fall below $50 in the next six months, Deputy Finance Minister Maxim Oreshkin told the state-owned Tass news service.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.