Buying Dollars No Way to Stop: Russian Finance Ministry Purchasing Foreign Currency at Record Pace in Aftermath of Putin’s Announcements
May 10, 2018
As of today, the Russian Finance Ministry will be buying dollars at a record pace over the next four weeks. It will spend a total of ₽323 billion on these deals during the period. Since the start of the year, the Finance Ministry has spent nearly ₽3 billion on replenishing its foreign currency reserves. If we take into last year’s transactions, it has spent a total of ₽1.8 trillion.
High oil prices have made it possible to buy up foreign currency aggressively. This week, the price of Brent crude jumped above $76 a barrel, its highest price in three and a half years. Russian Urals crude, which is traded at a discount of several percentage points to Brent, exceeded $70 a barrel. The price rise has continued for several months, producing a huge surplus in the federal budget (₽344.35 billion in the first quarter of 2018), since budget revenues had been planned based on a Urals price of $40 a barrel. Thanks to favorable trends in extractive resources markets, both President Putin and Prime Minister Medvedev cheerfully announced earlier this week that finding an additional ₽8 trillion to implement the president’s so-called May decree would not be a problem.
In turn, oil prices have been conquering new heights not only due to the efforts of OPEC and the countries allied to it. Quoted prices for black gold flew up an additional five to seven dollars thanks to statements by US President Donald Trump, who has been trying to dissolve the nuclear deal with Iran while blaming OPEC for high oil prices on his Twitter acccount for appearance’s sake. The US’s exit from the nuclear deal means sanctions cancelled under the previous US leader, Barack Obama, would be reintroduced against Iran, thus removing from the market, according to various estimates, 500,000 to 700,000 barrels of Iranian oil a day.
While Trump has been bending over backwards to give the Russian economy a leg up, Putin has spoken of the need to “untie” it from the US dollar in order to boost economic sovereignty. Perhaps these are mere words, not backed by real intentions, especially since they are at odds with the Finance Ministry’s actions. However, Iran itself earlier took certain steps in the same direction as it faced the threat of renewed sanctions. There is a risk the example of our Middle Eastern neighbor will prove contagious.
Translated by the Russian Reader. Image courtesy of Business Eye