Russia's $140 Billion Loss from Falling Oil Prices and Western Sanctions

The Russian Finance Minister announced that the decline in oil prices has cost the country between $90 to $100 billion, while Western economic sanctions have resulted in a $40 billion loss to the economy. Some analysts have assessed the damage from sanctions to be even greater. Anton Siluanov stated on Monday, November 24, that the drop in oil prices and Western financial sanctions against Russia due to the Ukraine crisis will result in an annual loss of $130 to $140 billion for the Russian economy. According to Reuters, this figure is equivalent to seven percent of Russia's total economy. This is the latest statement from a senior Russian official regarding the heavy toll of sanctions that limit Russian companies' borrowing from abroad. However, the Russian Finance Minister emphasized that the decline in oil prices is Russia's most significant concern. In a press conference in Moscow, he said, 'We lose $40 billion annually due to political sanctions, and our income has decreased by about 30 percent, amounting to between $90 to $100 billion due to falling oil prices. The most critical issue affecting the budget, economy, and financial system is the price of oil and the reduction in energy sales revenue.' Based on official forecasts and current exchange rates, Russia's Gross National Product this year is estimated to be between $1.9 to $2 trillion. The Finance Minister's forecast regarding the impact of falling oil prices aligns with economic analysts' assessments. Experts say that for every $1 drop in oil prices, Russia's export revenue decreases by $3 billion. Oil prices have plummeted from $115 per barrel in June to $80. Two-thirds of the Russian government's revenue comes from oil and gas exports. The decline in oil prices also jeopardizes Russia's repayment of foreign loans. Natalia Orlova, a senior economist at Alfa Bank, stated that the Russian government has not included the depreciation of the ruble in its $90 to $100 billion revenue loss calculation. The ruble's depreciation, influenced by falling oil prices, could partially offset Russia's economic losses through increased exports and reduced import costs. The ruble's value against the dollar has dropped by 25 percent since June. According to this economist, the net impact of falling oil prices on the Russian economy will be around $40 billion. Reuters further notes that Anton Siluanov's calculations regarding the costs of Western sanctions may be conservative and seem to be based solely on the direct impact of the prohibition on borrowing from foreign financial sources, without considering the overall performance of investors. However, some analysts, taking into account the indirect effects of sanctions and the overall tensions between the West and Russia over Ukraine, have provided more alarming forecasts. The Central Bank of Russia, in its latest financial strategy, has predicted that the net capital outflow from the country this year will be $128 billion, which has doubled compared to the $61 billion in 2013 due to the events in Ukraine and the imposition of sanctions. Last week, former Finance Minister Alexei Kudrin stated that the impact of both official and unofficial sanctions on the ruble's exchange rate and the macroeconomic dimensions of the country is comparable to the effects of falling oil prices, adding that regaining foreign investors' trust will take seven to ten years.