Russia braces for lower oil prices, will reduce Prosperity Fund

Russia is considering changing its budget rule as oil prices fall, Bloomberg reported Tuesday. The Kremlin expects prices to remain lower for a longer period of time as war spending continues to sap state coffers.

When constructing this year's budget, Russia assumed that the price of oil would be $60 per barrel. According to Bloomberg sources, the Kremlin is considering lowering the assumption from $60 to $50 per barrel. Discussions on this topic are at an early stage, and any decisions would require spending cuts.

If commodity prices exceed the amount assumed in the budget, the surpluses are directed to the so-called National Welfare Fund. As Bloomberg explains, this is a type of insurance: if prices fall, the government pays money from the Fund, compensating for the lower prices.

Revenues from fuel exports account for 30 percent of Russia's budget.

The Prosperity Fund, the agency recalled, has already been significantly depleted due to the Kremlin's financing of the war in Ukraine. At the beginning of 2022, it had 8.4 trillion rubles, and now 3.3 trillion (42 billion dollars).

On Saturday, the OPEC+ group of oil-producing nations decided to abandon the strategy of supporting oil prices by limiting production. The plan was also supported by Russia, which hopes that by increasing production it will be able to at least partially compensate for the fall in income. (PAP)

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