1/ With a lot of discussion of the oil price cap many forget to think about what it means for Russia's fiscal accounts. Can Russia 🇷🇺afford to wait it out? The short answer is yes. A thread 🧵
2/ The purpose of the oil price cap is to give an exit valve for Russian oil (to bring more Russian oil to the market, not less) at a lower price, as concern was that the EU oil embargo to come on in early 2023 will be too binding. Here are the scenarios.
3/ With the Ruble that is way too high (the extreme scenario of the Ruble at $50), Russia can reduce oil export volume by 10% and face the oil price of $75, and lose about 3.2% of GDP in fiscal revenues. This means its deficit would be roughly 3.2pp higher up to 6% of GDP.
4/ With the Ruble weakening to as much as $150, Russia might gain should it cut oil exports by 10% and face an oil price of $75, as its revenues would be higher than otherwise.
5/ I do not mean to say Russia is immune, not at all; without oil and gas revenues, Russia would have been in consistently large fiscal deficits over the last decade. However, using oil and gas revenues is more akin to "dissaving" or living off selling your parents' apartment.
6/ Russia is aware of the risk and attempted to save for the rainy day ~10% of GDP at end-2021. However, ~34% of it is already committed to spending, and possibly >21% were arrested with frozen reserves, leaving only ~ 4% of GDP by the end-2023.
7/ Russia itself expects its Revenues to go down 25% over the next 3 years because of the EU's pivot away from Russia's energy and a fall in global commodity prices. It can cut spending, as it has done post-2014.
8/ Russia also can lean on the banks. After all, Russia’s financial sector is dominated by public banks (accounting for more than two-thirds of total assets) that have room to increase their holdings. But who will then finance the grand reverse structural transformation?
9/ To sum up Russia is far from suffering enough from the sanctions. The oil price cap gives it an out to sell more oil. With oil price, volumes, and Ruble moving is hard to generate a painful fiscal scenario.
Permanently moving away from Russia's energy is what will hurt Russia

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More from @elinaribakova

Aug 28
1/ Lessons learned from #sanctions on Russia🇷🇺. One cannot switch the $1.5 trillion economy to crypto overnight. Russia also hasn't been under pressure to switch. Even if a large share of the banking system is under sanctions, cross-border transactions are still flowing.
2/ Cross-border transactions for trade are still flowing freely. $ 167bn Jan-July in Current Account surplus. Gazprom bank plays a major role, being a de-facto Central Bank for Russia, even if not an effective one as the Ruble is strengthening too much for the budget.
3/ Capital account transactions are more complicated, but not due to @bank_of_russia capital controls; those are essentially off, but due to foreign banks' unwillingness to accept transfers from 🇷🇺. Money is stuck in transition accounts at correspondent banks for months.
Read 9 tweets
Aug 18
1/ Sanctions on Russia are proving to be porous not only in energy. While self-sanctioning has been an important contributor to sanctions impact, many companies are still sitting it out. @SelfSanctions @JeffSonnenfeld
2/ The reasons are numerous and understandable. Our preliminary analysis suggests the importance of competing moral concerns, flexibility, and demand stability.
3/ Among all that are staying, the health care industry sticks out, in numbers and also among company statements. Many health care companies are concerned about their clinical trials.
Read 6 tweets
Jul 28
1/ Thread 🧵an update on Russia's 🇷🇺BoP accounts in 2q2022 that supports a lot of our expectations: Russia is swimming in cash, imports have contracted, but there are signs of Russia adapting. China and India are buying Russian oil, and Russian banks are accumulating money abroad
2/ 🇷🇺Exports are up 20% in 2q2022. Urals discount might have fallen marginally, Brent was up 64% to $113, and Russia's average Urals was $80 (the Urals was $70 in April based on monthly data). Gas, coal and aluminum prices are all up sharply; we know that.
3/ 🇷🇺 Russia is getting new energy markets:
- China 🇨🇳 increased Russian oil purchases by 55% yoy in May. Russia is now China’s largest supplier of oil, surpassing Saudi Arabia.
- India 🇮🇳 increased purchases 4.7 times, or by more than 400th barrels per day in April-May 2022.
Read 6 tweets
Jun 28
1/ Great summary by my colleagues for and against an oil price cap. My take is that an embargo is preferable. Cap implementation is challenging as it assumes
1. Russia desperate for cash
2. It can’t divert oil
3. Fields can’t be reopened.

@edwardfishman and @brianoftoole
2/ An oil embargo might not be politically immediately possible (see how complicated the EU negotiations on the 6th package were), so a cap is a second-best idea. The implementation here will be critical and secondary sanctions on non-aligned counties.
3/ Due to the challenging cap implementation, most oil experts have dismissed it. An indirect side effect of a hard bargain on the oil price cap might be a self-imposed oil embargo by Russia, but it is critical to limit its ability to divert oil especially as global price spikes.
Read 6 tweets
Jun 26
1/ What G-7 should do with an even greater sense of urgency is help Ukraine plug in the $4-$5bn monthly budget gap due to higher defense and social spending and revenue shortfalls.

My trip notes from Kyiv a few weeks ago Image
2/ Ukraine got only $6.8 bn in cash from the international community since the beginning of the war. With the monthly fiscal gap reaching $4.5 in May alone, this is, I am sorry, peanuts. Image
3/ As a result of the limited external support, the @NBUkraine_eng has been forced to monetize the bigger share of the fiscal deficit. Causing pressure on the exchange rate and creating a need for an aggressive policy rate hike. Image
Read 8 tweets
Jun 24
1/ Gazprom has always been a geopolitical project as opposed to oil (rents to the budget) and metals (money for the oligarchs) sectors.
2/ This is the reason Gazprom has always been taxed much lighter than oil (oil gives up most of its revenues over ~15$ plus oil price).
3/ Gazprom has been used for geopolitical objectives via contracts and pipeline infrastructure in Europe, domestic investments (accounting at time as high as 10% of all domestic gross investment), and subsidized domestic prices.
Read 10 tweets

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