Research & Insights #35

The ‘price cap’ doesn’t work 

Russia is becoming increasingly adept at circumventing restrictions, notably by abandoning the use of Western marine insurance for oil tankers. This enables Moscow to sell more oil at prices close to international levels. In August, almost three-quarters of oil shipments from Russia were transported without Western insurance, which was the ultimate means of imposing the price cap. According to Kpler data, this figure rose by around 50% in the spring. This change in trade flows boosts the Kremlin’s revenues as oil prices approach US$100 a barrel. The recent rise in oil prices is due in particular to the joint determination of Saudi Arabia and Russia to reduce their oil production. “Our country is successfully adapting to the illegitimate practices imposed by the G7. We are expanding our own tanker fleet, developing insurance instruments, and reorienting supplies to more dynamic markets,” said Russia’s ambassador to Washington, Anatoly Antonov.

“The worst is over,” says Russia’s economic elite
The Russian government is optimistic about the health of the country’s economy. Russia is going through a “large-scale macro transformation,” but the “worst is over,” Prime Minister Mikhail Mishustin said on September 28 during the Moscow Financial Forum. According to the Finance Minister Anton Siluanov, growth this year is forecast at 2.8% and the federal budget deficit will not exceed 2%. Russia’s manufacturing sector is booming, with the seasonally adjusted S&P Global Russia Manufacturing purchasing managers’ index up to 54.5 in September from 52.7 in August, the biggest improvement in operating conditions since January 2017. While the private sector and consumption drove the economy two years ago, it is now government procurement and investment that are driving growth. The latest 2024 budget includes massive increases in military spending, which has overtaken social spending for the first time. Despite pressure on prices, the Central Bank is maintaining its inflation target of 4% despite calls to raise it.

US dollar exchange rate reaches 100 rubles
On Tuesday October 3, one US dollar traded against 100 rubles on the Moscow Stock Exchange for the first time since August 14. At the time, this symbolic threshold had forced the central bank to raise interest rates by 3.5%, then by 1% in September, to 13%. According to analysts, the ruble’s recent decline is due to the end of the favorable end-of-month tax period, which encourages exporters to convert revenues into foreign currency to pay off local debts and tends to temporarily support the currency. The ban on diesel and gasoline exports imposed by Moscow in September to counter rising energy prices in Russia has also put pressure on the ruble. The government is considering new measures to stem the ruble’s fall, including forms of capital control. The central bank, which switched from targeting the exchange rate to targeting inflation in 2014, is opposed to such a measure.

Global trade falls at the fastest pace since the pandemic

According to the FT, world trade is experiencing its fastest decline since the early days of the COVID-19 pandemic. Demand for goods exports is falling as inflation, interest rates and the cost of services rise. In July, world trade fell by 3.2% year-on-year, the biggest fall since August 2020. The World Trade Monitor, an analytical tool from the Dutch Bureau for Economic Policy Analysis, completes this gloomy picture with data for June, which shows a contraction of 2.4%. The facts are clear: the global economy is slowing down. The world rebounded briefly after the pandemic, stimulated by increased demand. Unfortunately, this euphoria was short-lived. Export volumes are declining worldwide. In China, for example, volumes are down 1.5%. In the euro zone, they are down 2.5%. The United States was not spared either, with a drop of 0.6%.

Leave a Reply

Your email address will not be published. Required fields are marked *