6 Jun 2022 17:14

Russian budget losses due to EU oil embargo could total $30-50 bln in 2023 - BCS GM

MOSCOW. June 6 (Interfax) - BCS Global Markets (BCS GM) estimates Russian budget losses due to the EU oil embargo at $30-50 billion in 2023, according to a review by Natalia Lavrova, senior economist at the investment bank.

The sixth package of EU sanctions against Russia came into force on June 3: it provides for cancellation of oil imports from Russia by sea in six months. Waving of a number of Russian oil products, according to the decision, should take a little longer: eight months.

"These measures could be a serious challenge for the Russian economy, which is largely dependent on oil revenues and its partnership with Europe," the expert said.

"According to the latest trade data, the EU accounts for about 50% of Russian oil and oil products (we estimate that this share increased to 55% in Q1 2022), making the EU the main source of export revenue for Russia. However, between March and April, oil shipments from Russia dropped by 20%. Russia can still find new destinations for its oil exports, but after the oil embargo is imposed, this task will become more difficult, hence the trade and budget position of Russia may undergo serious changes in the medium term," Lavrova writes.

In her opinion, Russia's foreign accounts and budget are likely to remain strong in 2022.

"Our estimates confirm that even under the unfavorable scenario of a ban on Russian oil, which targets 75% of EU supplies in 2022, Russia's external position will remain strong with a trade surplus above $250 billion. If Urals oil prices exceed $105 per barrel, the price effect will fully offset volume losses in 2022," the BCS GM report reads.

Meanwhile, in 2023, according to the economist, the situation seems less favorable, with the Russian budget seeing losses of about $30-50 billion.

"As part of the stress test, these estimates are based on the assumption of a 90% reduction in oil exports to the EU, which will nevertheless be partially offset by rising prices (i.e. we do not need to make assumptions about possible volumes of oil diverted to the East - oil export volumes and its price are in the balance). We also assume that changes in Russia's export capabilities will lead to a reduction in oil production, so the main impact of sanctions on budget revenues is translated through the MET and export duties. Thus, under the unfavorable scenario of a 30% drop in production (to 350 million tonnes) and a Urals oil price at $80 per barrel, budget revenues may be $50 billion lower in 2023 than the budget law provides for. However, if Urals oil prices rise to $110 per barrel, losses will amount to $30 billion," the expert writes.

"Given Russia's dependence on oil revenues (40% of budget revenues versus 12% due to gas), Russia's budgetary position could be under threat in 2023," Lavrova said.