Energy revenues decline amid rising export limitations. Hence, Russia wants to sell almost three times as much foreign currency before early March.
The Russian Finance Ministry intends to sell 160.2B rubles ($2.3B) from February 7 to March 6. The budget mechanism should stop oil prices from changing too much.
The yuan is a primary asset Russia can still capitalize on by conducting sales from its wealth fund. In addition, this will cover expenses because US and European sanctions froze most of Russia’s overseas reserves. Nevertheless, the crude oil export limit hit President Vladimir Putin’s budget hard. He lost money, but it won’t hurt for a long time, due to a $45B reserve in Chinese yuan. In December, the Russian government said it was holding 310B yuan ($46B) in Chinese currency. According to the Finance Ministry, Russia will daily sell $8.9B in foreign currency until March 6th.
Impact of announced currency sales
According to Bloomberg, the Russian sovereign wealth fund’s liquid assets will be reduced by $21B from $87B. The estimate is that sales will average $2 billion per month over the rest of the year.
It’s no surprise that FX sales are increasing. After the adoption of a price ceiling on Russia’s oil in December, the Urals discount has expanded. Second, the budget is based on pre-blast estimates of Russia’s natural gas exports, which were formulated before the Nord Stream pipeline incident.
A US-led coalition of countries, including Group Seven nations, imposed a price cap over President Putin’s invasion of Ukraine on Dec. 5. Accordingly, Russia’s key oil-export blend is trading at significant discounts. The US-led group plans to expand the program to two refined Russian oil products on February 5. Although, pricing restrictions have yet to be established.