Russia’s oil and gas revenues have rebounded from recent lows and the country is gearing up to resume purchases of foreign currency as early as this month, according to Bloomberg Economics.
The country’s revenues from energy exports were hurt by Western sanctions and an embargo on oil and fuel exports to the European Union but, according to Bloomberg Economics data, this is beginning to change and revenues are now close to topping the target level set by the government.
As a result, the Finance Ministry is expected to announce a restart of foreign currency purchases, which were halted last year following the invasion of Ukraine and the Western response to it.
“It will be important for the market that the state is starting to accumulate reserves again instead of spending them,” Natalia Milchakova, an analyst at Freedom Holding Corp., told Bloomberg “This may even positively affect the ruble.”
Part of the reason for the recovery of oil revenues is a change in the calculation formula for oil industry taxes implemented earlier this year. The formula is based on an officially set discount for flagship Urals to Brent crude, which was set at $34 per barrel for last month. However, going forward, the base will be a narrowed discount to Brent, reaching $25 per barrel for July, Bloomberg reported.
According to the Russian Finance Ministry, the change in the formula could bring an additional $7.46 billion (600 billion rubles) into the federal budget.
As a result, Moscow will likely begin buying foreign currency for its sovereign wealth fund again, with analysts expecting the purchases to begin in June and focus on the Chinese yuan.
Previously, Russia had been drawing on the sovereign wealth fund to fill the budget gap left by the sanction-driven slump in oil and gas budget contributions. These were down by 45% on the year during the first quarter of 2023.