Russia Using Oil and Gas Sales to Bolster Foreign Reserves

A general view shows a local oil refinery behind residential buildings in Omsk, Russia, on Feb. 10, 2021. Alexey Malgavko/Reuters

Moscow has announced that it intends to increase its Government Reserve Fund by 273.4 billion rubles ($3.23 billion), with a major portion coming from oil and gas sales.

The funds will be used to implement measures to ensure the stability of the Russian economy as it faces extensive international sanctions, the Kremlin said in an April 10 statement. Of the 273.4 billion rubles, 271.6 billion rubles ($3.21 billion) will come from additional oil and gas revenues received during the first quarter of 2022.

“The right of the Government to dispose of these funds is enshrined in amendments to the law on the specifics of the execution of budgets of the budget system of the Russian Federation in 2022, approved by the President in early March. These powers allow the Cabinet of Ministers to respond quickly and flexibly to changes in the situation in the economy,” the statement said.

The Government Reserve Fund was created to meet unforeseen financial expenses or other measures that are not accounted for in the federal budget of a corresponding financial year. Last year, the funds were used to meet expenses related to COVID-19 and make payments to pensioners of families with children aged between 6 and 18.

Russia accounts for around 40 percent of Europe’s gas supply, netting in over $400 million per day according to the International Energy Agency. Roughly a third of the European Union’s oil imports valued at $700 million per day also come from Moscow.

Since Russia invaded Ukraine on Feb. 24, the EU has paid Moscow $38 billion for energy supplies, which has helped bolster Russia’s foreign reserves.

For the week ending April 1, Moscow’s forex reserves rose by $2.1 billion to $606.5 billion, compared to $604.4 billion a week back, according to the Russian central bank. But the value was still lower when compared to Feb. 18, a week prior to the war, when reserves were at $643.2 billion. Though the EU is looking at ways to cut its dependence on Russian energy, such plans are not expected to materialize anytime soon.

Overall, Russia’s gas and oil revenue in March was lower by 38 percent compared to what the finance ministry had forecast for the month, indicating that Western sanctions continue to put pressure on the economy.

Meanwhile, S&P Global downgraded Russia’s rating to “selective default” on April 9 after Moscow made payments to dollar-denominated debts on April 4 in rubles.

“We currently don’t expect that investors will be able to convert those ruble payments into dollars equivalent to the originally due amounts,” the rating agency said. The last time Russia defaulted on its foreign debt was during the Bolshevik Revolution in 1917.