A long month ago

Stratfor a month ago:

Russia’s energy sector, particularly its oil exports, is the lifeblood of its economy. Energy exports account for 25 percent of the country’s GDP and approximately 50 percent of the government’s budget. There is no choice for the Kremlin but to assist the sector or risk financial ruin should energy exports decline and revenues dry up.

With both the defense and energy sectors needing more cash in the years to come, Putin will probably draw on Russia’s massive reserve funds rather than depend on the state’s budget. Russia has approximately $641 billion in reserves: $467.2 billion in currency reserves, $87.32 billion in the National Wealth Fund and $87.13 billion in the Reserve Fund.

But these funds are intended to be used when oil prices fall below $100 per barrel in the 2015 budget ($114 per barrel in the current budget). With the budget pinned on such a high price point, the robustness of these funds and conservative use of them have always been critical to the stability of the Russian government. In 2008, the Russian government sped through more than $200 billion in the reserves to stabilize the economy during the financial crisis. Moreover, there is no guarantee that oil prices will remain in the triple digits

Stratfor today: “Russia’s Central Bank raised its main lending rate Oct. 31 by 1.5 percentage points, more than was expected, Reuters reported. The hike is meant to temper the effects of higher-than-desirable inflation, low oil prices and Western sanctions. The increase comes a day after the value of the ruble fell against the dollar and the euro, and it brings the bank’s main lending rate to 9.5 percent.” $114 a barrel oil in the current budget? Looks like trouble ahead.

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