Oil prices put the boom into boom-bust
RT:Do you expect the oil price rally to continue and where do you see the peak?
RN: I think there is just great uncertainty right now. We’ve seen a huge amount of volatility in the oil price over recent days, and there’s an obvious reason why – who knows what is going to happen in the Middle East and how far this can spread?So, you know, will there be another oil price spike?I think there is a real danger that there could be.Where it will go to I think is anybody’s question. Everyone is really trying to search for some answer to that.
RT: How would an investor go about taking advantage of this in the short term?
RN: An obvious way is to invest into Russia.Russia is in a very positive position right now, relative to the oil price.It is the world largest oil exporter at a time when the oil price is moving much higher.It is bad for the world but actually good for Russian earnings, and the Russian economy.
RT: Over the longer term, is a sustained high oil price good for Russia or does it run the risk of dragging down the world economy and Russia with it?
RN: I think in the short term it is good for the Russian budget, but, you know, the real key to having the sustainable medium term growth in Russia is actually getting Russia weaned off the hydrocarbons, weaned off producing oil.So having a higher oil price actually makes Russia more reliant on oil, and I think it is a temporary boost, but in the longer term I like to see a stable and perhaps even lower oil price than you have got right now, for Russia.
RT:And what is the best defensive move for those fearing an oil shock?
RN: Well, you know, a really big oil shock and all bets are off.That’s a time when people just sell risk, they want to get out of any kind of risk including Russia.Then even Russian stocks will sell off.Assuming that we don’t have that huge move, then I think some of the Russian stocks right now, they are cheap.They produce a lot of oil and therefore will benefit from the oil price.
RT:Here in Russia, the central bank raised interest rates for the first time in two years on Friday to curb sharply rising inflation. How quickly do you expect further rate hikes to come, and what sort of problem does inflation represent?
RN: The medium term problem for Russia is higher inflation.Russia tends to be a boom bust economy, and it is largely driven by oil prices again.So when oil prices rise it puts pressure on prices to rise in Russia.Inflation is on the uptick now.Russia is trying to counteract that by raising interest rates like a lot of places in the world – and I think you are going to see more of that going forward.When will the next one be? It could be pretty soon actually.It could be within the next three months or so.