As of: January 24, 2024, 7:01 p.m
By: Lars-Eric Nievelstein
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Sanctions and war efforts are putting pressure on the Russian economy.
The country is using its sovereign wealth fund to support them.
Half of the liquid assets have been burned.
Moscow – Since Moscow's invasion of Ukraine, the amount of liquid assets in the Russian sovereign wealth fund has fallen dramatically.
According to a Bloomberg Economics
report
based on data from the Russian Ministry of Finance, there has been a 44 percent decline in the last two years alone.
Bloomberg
has been counting here since February 2022. Economists assume that the fund's liquid assets will be sufficient for a maximum of two more years.
However, there is a prerequisite for this.
Decrease in liquid assets in the Russian sovereign wealth fund (Bloomberg) |
56 billion dollars (five trillion rubles) |
|---|---|
Price of a barrel of Urals crude oil (2023) |
$62.99 |
Growth in holdings of Russian corporate and infrastructure bonds |
2 trillion rubles |
Actual date of Russian invasion of Ukraine |
February 20, 2014 |
Russian sovereign wealth fund is shrinking – liquid assets are sufficient for another two years
In total, this is a sum of around five trillion rubles (around $56 billion) that Russia had to withdraw from the sovereign wealth fund between February 2022 and the beginning of 2024.
At that time, the fund's easily liquidable assets were still at 8.9 trillion rubles, or about $100.4 billion.
Russia is burning its money in the Ukraine war – prosperity funds will remain liquid for another two years © IMAGO / SNA / Pavel Bednyakov
The fund's total holdings fell by twelve percent over the same period.
After Russia dramatically increased its defense spending, the government also had to use about three trillion rubles from the fund to cover the budget deficit.
Economists assume that the fund's liquid assets will last for a maximum of two years if Russian oil export prices fall below $50 per barrel.
Russia uses sovereign wealth funds to support the economy
While the liquid assets of the national prosperity fund in Russia shrank, the holdings of Russian companies and infrastructure bonds grew.
According to calculations, there was growth of two trillion rubles.
According to Bloomberg, this is a sign that Russia is using its liquid reserves to support the economy.
Ukraine war and oil prices hit the Russian economy
Which seems to be urgently needed because it is struggling with several problems.
One of them is the course of the war.
Not only has Ukraine managed to liberate large parts of the territory occupied by Russia in 2022, it continues to land surprising hits far behind the front line and destroy expensive material in the process.
An example of this is the Ilyushin Il-22 flying command center.
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Another problem is the weak oil price.
This fell by around ten percent within the last twelve months.
For Russia, oil is one of the most important sources of income: China and India are currently buying a lot of Russian oil and gas and are driving down prices.
Crude oil from the Urals cost $62.99 a barrel last year.
That means a decrease of 17 percent.
With gas, profit losses of up to 65 percent can be measured.
Western sanctions and the hunt for Russian oligarchs
Problem number three: Western sanctions.
These are increasingly aimed at “dual use” sectors, i.e. those that can serve both the war economy and the normal economy – oil, for example.
Western sanctions have, among other things, affected the completion of the “Arctic LNG 2” natural gas liquefaction plant, a prestige project of the Moscow government.
At the beginning of 2024, the European Union also joined the diamond sanctions and imposed a trading ban on the Russian diamond giant Alrosa and its board.
And finally, the EU continues to “hunt” Russian oligarchs and takes steps to make it more difficult for them to own assets in Europe.