“Hand over your foreign currency”; or, Capital controls, Russian style

Kommersant reports that the Russian government has informally ordered Russia’s leading exporters to sell about $1 bn per day for the next two months. The ruble has firmed up lately, probably as some of these exporters were persuaded to sell some of the dollars they had hoarded in the forex market. The government’s arguments? I’ll offer a guess. “If you’re a state company, we’ll make you via the board of directors (minority shareholders be damned). If a private firm, don’t expect new licenses or lifelines to state coffers if you don’t comply. It’s a national emergency!”

But how plausible is this $1 bn per day, $30 bn per month target?

According to official customs statistics, the value of total Russian exports in January 2012, 2013, and 2014 was $40 bn, $38 bn, and $39 bn respectively. The share of oil and oil products export in that ranged from 55-56%, and the share of oil, products, and gas (including LNG) was 73-74%. Brent averaged $111, $112 and $107/bbl in those months.

If 55% of Russia’s exports was oil, diesel, fuel oil and other products in January 2014, and Brent has lost 45% of its value since, total exports in January 2015 should contract by about a fifth to a quarter year over year, all other things equal of course. Let’s assume for simplicity that Russia sells crude for $60/bbl in January 2015, that product prices change roughly in proportion to crude, and that the physical amount of liquids exported will not change much year over year. Gazprom’s average gas price to the EU probably won’t crash yet but Ukraine sales should, year over year; let’s be generous and postulate only a 5% decline in gas exports. Also wishfully, let’s hold all other exports constant.

From all that, I think $30 bn will be a rather optimistic scenario for total Russian exports January (and February). It means that Russia’s large exporters have agreed to sell more dollars from exports than they can realistically hope to receive, for two months. How? Do they have a different view of the future? Do they expect to break their promises? Or were they hoarding greenbacks, helping to bring about that “national emergency”?

Draw your own conclusions. Predictably, Russians are quoting Bulgakov, namely Nikanor Ivanovich’s dream in Dr. Stravinsky’s mental clinic. “Hand over foreign currency,” citizens!

One comment

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