MOSCOW: The shifting balance of power in the oil world is showing up in a new indicator: central bank reserves.
For the first time in eight years, the Bank of Russia’s total stockpile of cash, gold and other securities is about to surpass Saudi Arabia’s, highlighting the Kremlin’s leverage in talks between major oil producers about how much to reduce production.
While Saudi Arabia has been draining its reserves to cover social spending amid low oil prices, Russia has tightened its budget and is running a surplus amid fears of new sanctions. With Russia increasingly the deciding voice in discussions with the Organisation of the Petroleum Exporting Countries (Opec), the financial divergence is the latest sign of the changing fortunes between the big oil players.
“Opec can no longer ignore Russia because of its importance as an oil exporter and its economy, ” said Elina Ribakova, deputy chief economist at the Institute of International Finance in Washington. “The Russians will continue doing just enough to engage with the Saudis on oil production.”
The price of Brent crude has plunged more than 20% since April to around US$57 a barrel, far below levels most Opec nations, including Saudi Arabia, need to cover government spending. The group and its partners pledged in December to reduce daily output, but it’s unclear whether Russia, the biggest non-Opec partner will be willing to cut further. President Vladimir Putin has indicated he’s satisfied with prices near current levels.
Russia’s reserves have swelled 45% in the past four years to total US$518bil in June. Saudi Arabia’s are following the opposite trajectory, with reserves falling to US$527bil by June, as the kingdom spends money stockpiled when oil prices were much higher.
The divergence means Russia is about to leapfrog Saudi Arabia into fourth place in the world for reserve size. — Bloomberg