Russian energy exports are close to reaching a milestone $1-billion per day value mark bringing in more money for social spending and creating additional inflationary pressure, a report said on Tuesday.
Russian brokerage UralSib said in written research high earnings may also prompt the government to alleviate the tax burden on the oil sector to revive the output growth.
Russia’s benchmark Urals crude tipped a record $100 per barrel mark this week and once it trades at $107,5 per barrel, the daily value of crude, refined products and gas exports will hit $1-billion.
”Higher oil and higher state spending are hugely inflationary, along with likely increased speculative capital inflows that are also pressuring the rouble higher against the US dollar, will increasingly reduce the competitiveness of the Russian economy,” said Chris Weafer, chief strategist at UralSib.
The rouble-US dollar exchange rate fell below 24 roubles per dollar last month, for the first time in nine years, making Russian goods more expensive.
Though the government targets inflation of 8,5% this year, analysts have said it could be higher. Last year’s inflation stood at 11,9%, exceeding the government’s target by a wide margin.
Russia’s 2008 budget is based on an average Urals price of $65 per barrel, Weafer said, with almost 70% of exports coming from the oil and gas sector, but if the booming prices stay, this year will exceed 70%.
This may prompt the government to spend more on social needs, creating additional inflationary pressure.
But high energy prices will help Russia avoid fears of a shrinking current account surplus and reduce the need to tap into international credit markets as funds could be found internally.
Higher revenues may also push the government toward alleviating the tax burden on the oil sector as oil firms argue they lack funds to invest in new fields because all incremental profits are being taxed away.
”Either a reduced tax take or a series of tax credits will be introduced this year to help and or encourage the oil companies to raise capex spend,” Weafer said. – Reuters