Ceiling of $60 a barrel provides room for Russia to profit from current prices, but won’t be enough to slow widening budget deficit
$60 is below Russia’s fiscal break-even price of above $70 a barrel, the price that analysts say it needs to balance its budget. So, even if Russian crude prices eventually rise to the level of the cap, its revenue still won’t be enough to cover all of Russia’s costs, widening the country’s budget deficit and potentially prompting big cuts or a dip into Moscow’s rainy-day funds.
“The public finances will remain under pressure, and the budget will stay in deficit, requiring the government to maintain a tight fiscal stance,” said Liam Peach, senior emerging-markets economist at Capital Economics.
Russia’s vital energy industry, which is already under severe pressure from Western sanctions that limit funding and imports of key technologies, will take a hit from the new measures. Despite Russia’s efforts to reroute its oil flows to China, India and other countries, analysts and Russian officials expect production to decline as the EU—its biggest market until recently—bans most imports and shippers find it hard to buy insurance.