Russia Pauses Budget Rule Change as Oil Rally Eases Fiscal Woes

Article content(Bloomberg) — Russia is delaying a decision aimed at reducing its dependence on energy income as oil prices surge on the back of the war in the Middle East.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentAn adjustment to the country’s budget rule — which sets the oil-price threshold for tapping reserves in the National Wellbeing Fund — has been postponed, along with sales of the fund’s assets to finance the deficit, according to two people familiar with the discussions, who asked not to be identified because the talks aren’t public. Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentArticle contentThe government may return to the decision as early as June, one of the people said.Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article contentThe delay underscores the challenge Moscow faces as it tries to settle on a fiscal framework designed to shield the economy from external shocks at a time of slowing growth and continued high spending on the war in Ukraine. While higher oil prices may ease short-term pressure on Russia’s budget deficit, officials will have to balance that with the risk that the conflict in the Middle East damages the global economy and hurts longer-term demand for commodities.Article contentUnder the current rules, Russia uses its rainy-day fund to make up shortfalls in oil and gas revenue whenever the export price of Russian crude falls below $59 a barrel. Before the US and Israel attacked Iran, Russian oil was selling at much lower prices due in part to the impact of Western sanctions, which forced the Kremlin to offer steep discounts.Article contentConcerned about depletion of the National Wellbeing Fund — already more than half exhausted by the war in Ukraine — the government had been preparing to lower the oil-price threshold embedded in the budget rule.Article contentArticle contentThe level of the threshold and the timing of the change were under discussion when the Middle East war and disruption of shipping through the Strait of Hormuz sparked the jump in energy prices and increased uncertainty, one of the people said. Article contentIn February, Finance Minister Anton Siluanov warned that decisions to tighten the budget rule needed to be taken “quickly.” Article contentOn Monday, he softened his tone, saying a decision would come “in the near future.”Article contentThe government is weighing steps to reduce the budget’s reliance on oil prices over the medium term and to limit the impact of currency sales from the National Wellbeing Fund on the foreign-exchange market, Siluanov said in an interview with Rossiya 24 television.Article contentLowering the oil-price threshold would reduce currency sales or potentially shift the government toward purchases, helping to address excessive strength in the ruble — another factor damping export-related budget revenue.Article content“The decision should not be delayed any further — and it is indeed a fairly complex one,” said Mikhail Zadornov, a former finance minister, in an interview with Forbes Russia published Sunday. “Frankly, it would be better to ignore the situation around Iran, because it’s temporary.”Article contentThe Bank of Russia, wary of fiscal policy complicating its fight against inflation, has signaled the threshold shouldn’t exceed the average oil price expected over time, regardless of the current market.Article contentPast oil-price spikes have shown that prices can fall below pre-shock levels, Deputy Governor Alexey Zabotkin said at a State Duma session on Friday, according to the Interfax news service.Article contentTrending JPMorgan Sees 'National Security Risk' in Old Grid Networks PMN Business Subscriber only. 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JPMorgan Sees 'National Security Risk' in Old Grid Networks PMN Business Subscriber only. Traders placed US$580 million in oil bets ahead of Donald Trump's social media post on Iran talks Subscriber only Financial Times Despite growing financial pressures, Canadians are still reliably paying their mortgages Mortgages Garry Marr: Why it could be the right time to walk away from your real estate Personal Finance 'Bleeding businesses': Number of active companies that depend on U.S. is dropping in Canada Economy