Economy • Apr 12 18:12 • Modified on Apr 12 18:12 Russian economy takes heavy hit from import duties Author : BNR Web Editors Although Donald Trump has not imposed tariffs on Russia, Moscow will suffer greatly from the trade war, write Alexandr Kolyandr of the Center for European Policy Analysis and Alexandra Prokopenko of the Carnegie Russia Eurasia Center. Russian oil revenues will fall, making it very difficult for the Russian central bank to cut interest rates.
Now that Trump has unleashed a global trade war, global growth will slow down sharply, especially in China and other Asian countries. This low growth will translate directly into a drop in the price of oil, Russia's main export product. And with that, the country's main source of income will take a big hit.
Read also Putin clashes with top banker, blames her for spiralling inflation Bot interest weapon As a result, it will become more difficult for the Russian central bank to lower interest rates. The current high interest rate of 21 percent is playing tricks on Russia, making borrowing very expensive and putting a brake on economic growth. Russian businesses are persistently lobbying President Putin for interest rate cuts, reportedly with success; there are persistent rumors that Putin is already putting pressure on the president of the central bank Elvira Nabiyellina to do something about the sky-high interest rates.
Nabiyellina told the TASS news agency that the central bank is "analyzing" the consequences of the trade war. "The main aspect that can have an impact is the change in oil prices," Nabiyellina told members of the Russian parliament. Nabiyellina acknowledged that a "decline in world trade" could potentially lead to "a decrease in demand for our energy resources."
Nabiyellina said he was "concerned" that inflation in Russia, which rose above 10 percent in February, has been above the target for four years and stressed that he wanted to prevent inflation "from spiralling out of control and ending up in double digits."
Read also Putin publicly calls central bank to order, interest rates remain at 21 percent Achilles heel Oil is Russia’s Achilles heel, oil revenues account for 30 percent of the total state budget, for the war in Ukraine the Kremlin has allocated 32 percent of the state budget for 2025. And that is problematic, when drawing up the budget for 2025 the Kremlin assumed an oil price of 70 dollars a barrel. But on April 7, the price of Russian Ural oil plummeted to a 21-month low of 51.54 dollars a barrel.
“If the average price is below $70 per barrel all year round, Russia will have less money to earn and spend, especially to cover the growing expenses related to illegal actions against Ukraine,” The Kyiv Independent quotes a Polish energy expert as saying.
Exports to Europe are falling The weakened position of Russian oil and gas “not only reduces the chance that Russia can export more to the European Union, but also makes it more likely that Asian buyers will be willing to pay even less,” said Bloomberg economist Alexander Isakov. “The fact is that the EU, China and others will want to reduce their trade imbalances with the U.S., and one way to do this is to increase imports of oil and LNG from the U.S..” And because a euro can only be spent once, this comes at the expense of imports from Russia.
Read also Russia struggles with huge inflation: 'Will continue to rise' Another effect is that Russia will become even more dependent on China. Beijing is looking for other markets now that the US dollar has been locked down and the yuan is devaluing. Both are causing China to focus more on Russia as a market. Russia's revenues from oil and gas exports fell by 10 percent in the first quarter of this year to 2.6 trillion rubles (81.2 billion euros). That was 65.6 billion rubles (632 million euros) less than anticipated in the Russian budget plan, according to the Ministry of Finance.
Read also Food Russia is extremely expensive, butter theft is reaching epidemic proportions “The deficit means that the Ministry of Finance, according to the budget rules it has imposed on itself, will have to switch from buying gold and yuan to selling liquid assets from the rapidly shrinking National Welfare Fund. This is happening for the first time in a year,” Kolyandr and Prokopenko said. Therefore, from April 7 to May 12, gold and foreign currency equivalent to 1.6 billion rubles will be sold every day. At the same time, the Central Bank will sell 8.86 billion rubles of yuan per day until the end of the second quarter to provide some support to the ruble.
