Research & Insights #51

Russia is in a position to repay all its foreign debt in cash

Russia’s foreign debt decreased to US$ 326.6 billion in December 2023, from US$ 383.6 billion a year earlier. Russia’s low level of foreign debt means that the state and companies are not dependent on international capital and are not exposed to the risk of sanctions on their bond issues. The country’s international reserves stood at around US$ 600 billion at the end of the first quarter of 2024, although around half of these reserves are frozen. Around US$ 150 billion is in monetary gold and the rest is in yuan, which means that even excluding frozen funds, Russia can cover its external debt with cash, while all Western countries are massively indebted. Thanks to high oil prices, Russia’s current account surplus rose from US$ 4.5 billion in January to US$ 5.2 billion in February. Russia is probably one of the least vulnerable countries in terms of macro fundamentals.

Russian diamond sanctions benefit Dubai at Antwerp’s expense

Sanctions against Russian diamonds have come into force and traders are fleeing Antwerp for Dubai to avoid what they see as “impossible” rules. Until recently, over 80% of all rough diamonds mined in the world were traded in the Belgian city. But since 01 March , traders are required to inspect all stones over one carat to ensure that they do not come from Russia, the world’s leading exporter of rough diamonds accounting for 30% of global production by volume. According to merchants, it is “impossible to determine the origin of a stone” simply from its physical composition. To avoid operating under EU rules, some traders are planning to set up operations in Dubai or India. “The current trajectory threatens the existence of Antwerp’s diamond industry, a heritage of six centuries”, believe the diamond traders. Alrosa, the world’s largest state-owned diamond mining company, which accounts for over 90% of total Russian diamond production, is under EU sanctions.

Most Russians have never lived as well as they do now

According to Russian media outlet The Bell, considered a “foreign agent” by the Kremlin, “most Russians have never lived as well as they do today”. The Russian economy is growing due to increased public spending, in particular to support the war effort, leading to wage increases outstripping inflation. The average income of the richest 10% of Russian society has risen by 27% since the start of the war, while that of the poorest 10% has risen by 67%. According to Levada, the proportion of Russians who feel that the distribution of material wealth in Russia is becoming more unfair fell from 45% in 2021 to 25% in November 2023. According to the head of the central bank, investment activity has reached record levels and the business climate indicator achieved its highest level in 12 years. Unemployment reached a record 2.7% in January.

World’s largest oilfield services group continues to operate in Russia

The world’s largest oil services company, SLB, formerly Schlumberger, continues to operate in Russia, unlike its two main rivals, Baker Hughes and Halliburton. Active in the country since the 1990s, SLB generated around 5% of its sales of US$ 33.1 billion in Russia in 2023. It employs some 9,000 people, but stopped making new investments and deploying technology in March 2022 following the sanctions. SLB’s CEO told the Financial Times that SLB had put controls in place “to prevent and prohibit any shipment and support of technology” to Russia since July 2022. These measures reduce the country’s ability to exploit some of its offshore oil fields in the long term. According to US regulatory filings, the company retained net assets in the country with a book value of US$ 600 million at the end of 2023.

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