Over the past two years of the war against Ukraine, the reserves of the National Wealth Fund of the Russian Federation have fallen by 44%. The liquid share of the reserves was 8.9 trillion rubles or $100.4 billion on February 24, 2022, but now it is 5 trillion rubles or $55.9 billion. The summaries were published by Bloomberg, based on data from the Ministry of Finance of the Russian Federation.
Russia has been accumulating assets in the National Wealth Fund for many years, but these assets are dwindling rapidly due to the military actions against Ukraine and Western sanctions. The Ministry of Finance has already allocated around 3 trillion rubles from the NWF to cover the budget deficit in 2023. It plans to allocate an additional 1.3 trillion rubles infusion into the budget in 2024. At the same time, the share of illiquid assets has increased by 2 trillion rubles, as the stock prices of Moscow companies have fallen, and illiquid infrastructure bonds have been purchased to support macroeconomic stability. Russians continue conducting combat actions against Ukraine, and expenses on the military are constantly growing, thereby accelerating the utilization of liquid reserves from the National Wealth Fund.
It is expected that the NWF will transfer funds to the Ministry of Finance of Russia, which, in turn, will compensate for revenue losses from exports if the oil sales profits exceed the budget estimate of $60 per barrel. Another important factor, contributing to the depletion of the Russian National Wealth Fund, is the war in the Middle East.
“If the risks of disruptions in supply due to the Israel-Hamas conflict are ignored, the liquid assets of the National Wealth Fund (NWF) will continue decreasing, making Russia more vulnerable to shocks. This will last only one or two years if the export price of Russian oil falls below $50.”
Russian economist Alexey Isakov
The Ministry of Finance provided data indicating that the average price of Russian export grade oil Urals had fallen by more than 17% to $62.99 per barrel last year. Therefore, the price of oil in the revenue part of the Russian Federation’s budget for 2024 is expected to be $71.3 per barrel throughout the year. This is not just above the “price ceiling” of $60 but it is currently higher than its market value.
