High oil prices to help budget bottom line

Finance Minister Aleksey Kudrin says the spike in global crude prices will help Russia’s budget position.

The Finance Ministry says that Russia’s budget deficit could be narrowed to just 2% of GDP this year if higher crude prices remain.Speaking with Prime Minister Putin Kudrin noted that although the official budget deficit forecast remains at 3.6% the higher prices are helping Russia to replenish the Reserve Fund.

“Part of Russia's Reserve fund may even increase due to oil revenues – our estimates say it could bring an additional $50 billion. This means that for the first time after the financial crisis we're coming back to replenishing the reserve, which is very important given the high risks of today's global market.”

With WTI holding just below $100/bbl and Brent just over $110/bbl on Monday on the back of civil disturbances across the Middle East, Business RT spoke with Konstantin Simonov, Director of National Energy Security Foundation, about the implications for Russia.

RT: Some say that high oil prices are good for the Russian economy, others say it will have a negative effect. How do you think the growing price will affect Russia?

KS: “You know, it’s an old discussion in Russia, some experts are thinking that with oil and gas there will be no modernization of our country, but I am absolutely sure that high oil price is good news for Russia, because, you know, that I think that with oil and gas it is possible to organize modernization of our country.Let’s compare Russia with Ukraine.After the collapse of the Soviet Union, you know that Ukraine became an independent state.Russia has oil and gas, Ukraine has no oil and gas.Do you see some modern factories in Ukraine – No. Do you see Hi tech, or so called post-industrial economy in Ukraine – No. That is why I don’t think it is truth to say that oil and gas have negative effect if we are speaking about modernization, if we are speaking about new technologies in Russia.That is why I think that high oil prices are the good news for Russia.It is possible to use this money also for the modernization of our economy.”

RT:Will the current oil price growth lead to what happened back in 2008?

KS: “You know if, for example, we are speaking about Libya and Egypt, Libya is not, you know, a big player if we are talking about world oil market.So the production of Libya is high – approximately 80 million tonnes per year.But if we are speaking about all over the world producers we are speaking about less than 2% – I mean Libya.So that is why, of course, there will be no export of revolution to other countries of Arabian world.I think that soon we will see some decline of oil prices.But I am absolutely sure that it is only the beginning, it is only the beginning of this process, and my focus is that soon we will see absolutely the same situation in Algeria, because, you know, a little bit more than ten years ago, we already saw the civil war in Algeria.So I am absolutely sure that there will be the same situation soon in Algeria.Then maybe the same situation will be in Yemen, Bahrain, or even, it is difficult to imagine, but maybe in even Saudi Arabia also, because we see this political instability near this country.You know that Saudi Arabia is a key player if we are speaking about world market, that is why, if there will be another revolutions, another Arabian countries, of course, soon, the price of oil will be more than $200.”

RT:Some local analysts say new deposits in the Arctic should not be developed until the oil price reaches $150. Is there any basis to such statements?

KS:“You know, of course, it is a good example.We were speaking about the situation in oil market because there are some news which can increase oil prices, but you are right, if we are speaking about greenfields, if we are speaking about possibility to use new oil, in new territories.Of course, high oil prices will help to produce this oil.You said about Arctic zone, yes, we think about soon production of oil in arctic, but not only Arctic, we can speak about sand oil in Canada, and so on.So, with the help of high oil prices it is possible to produce new oil, heavy oil, and so on.That is why, of course, Arctic is only one zone, so that is why if oil prices will be high, there will be new oil on market, and this new oil will help drop, to organize some decline of oil prices.”

RT: But the Arctic is considered to be the most difficult area?

KS:“Yes, one of the most difficult – you are absolutely right.And one more detail that you appear in our conversation about influence of oil prices to Russian economy – because now the typical idea that without, sorry, with oil we have no new technologies in Russia.Arctic is a good example, I mean example that oil we can say, will be the main driver of modernization of our economy, because without new technologies it is impossible to develop Arctic zone, so that is why high oil prices will help us.To produce oil in arctic, so that is why I think that our joint project, for example, with Rosneft and BP – and Rosneft announced last week that soon will be new foreign majors in the Arctic, and also we can say we are welcome foreign companies to develop Arctic with us, and high oil prices will help us and help foreign majors as our partners.”