Russian Economy - Higher Oil Prices Have More Impact on Balances Than on GDP, Ruble

The global economic recovery appears to be relatively strong thanks to unprecedented fiscal and monetary support. Oil prices remain quite volatile, but it seems likely that we will have to raise our average Brent forecast for this year from the current $55/bbl. This raises the question as to how this would affect the Russian economy. In this note, we consider several oil price scenarios. > The fiscal rule has significantly reduced the sensitivity of Russian macro indicators to the oil price. The ruble's sensitivity to Brent now stands at just 10%, while the sensitivity of GDP is only 1%. Prior to 2017, the sensitivity for both was three times higher. > The oil price now mainly affects the budget balance and the current account. When the oil price is higher, the additional oil and gas revenues above the base level accumulate in the National Wealth Fund (NWF). They are reflected as an increase in budget revenues and an increase in gross international reserves. > We believe the geopolitical premium, global inflation and the use of the NWF are more important for Russia's economic performance than the oil price.