Russia’s oil curse means tethering rouble in budget fix

FOR A COUNTRY whose management of its oil wealth a central banker once described as being ‘in the middle between Norway and Nigeria,’ Russia seems to have made up its mind.

The world’s biggest energy exporter is looking to the Nordic country with a proposed budget mechanism that would prevent the government from spending surplus revenue above a pre- set oil price.

The crude- price cutoff would be in the range of about US$ 40 ( RM156) to US$ 50 a barrel, and income received above that will be stowed away in reserves, Finance Minister Anton Siluanov said in Moscow last Wednesday.

The revamp is among the most far- reaching steps by Russia to pry the economy out of its addiction to energy and insulate it from the ups and downs in crude prices. When the Bank of Russia shifted to a free-floating exchange rate in late 2014, the rouble became hostage to oil like never before. Without interventions to smooth its swings, the correlation between the currency of the world’s biggest energy exporter and a barrel of crude reached a record last week.

“The Russian government is following Norway’s example and weakening the correlation between oil and the economy,” said Oleg Popov, a money manager who oversees US$ 300 million of assets at April Capital in Moscow.

The rouble has already surged 27 per cent in the past three months as oil rebounded, the best performer globally. It’s appreciated more than 13 per cent against the dollar this year after a 20 per cent loss in 2015. The Russian currency traded 0.3 per cent stronger at 64.97 against the dollar as of 10.33am in Moscow. Three-month implied volatility, a measure of exchange- rate swings used to price options, is the world’s second-highest after Argentina’s peso, suggesting investors anticipate strong ruble price f luctuations will persist, data compiled by Bloomberg show.

Countries from Saudi Arabia to Canada are retooling their economies after the worst oil crash in a generation as efforts falter to stabilise the global market. Russia, its finances reeling after crude fell to a 13-year low in January, is revisiting a fiscal mechanism suspended this year that capped spending based on a backward-looking average for oil.

Norway has used its energy income to build the world’s biggest wealth fund and is tapping it for the first time this year. — WPBloomberg

An oil worker inspects a pumping jack, also known as a ‘nodding donkey,’ during drilling operations in an oilfield operated by Bashneft in the village of Otrada, Russia. Russia is weighing a proposed budget mechanism that would prevent the government...