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Oil prices set records, but Russian ruble doomed to decline further

The price of Brent oil exceeded $89 per barrel for the first time since October 13, 2014.

Economists do not rule out a possibility for the price of a barrel of oil to exceed $100 in the first quarter of 2022 as the coronavirus pandemic gradually retreats and the demand for oil recovers.

However, many analysts believe that by the end of 2022, the price of oil will remain at a level close to that reported in the beginning of January. There is still excessive supply of oil on the world market as many countries still implement or plan to implement lockdowns.

Rising prices on oil do not help the Russian national currency, the ruble. As a result of the trading session on January 18, the Moscow Exchange Index lost 6.34 percent, while the RTS index fell by 7.24 percent. Securities of such major companies as Sberbank, Norilsk Nickel, Gazprom, Magnit and Yandex declined most — they fell by 3.44-10.14 percent.

The collapse of the market against the backdrop of geopolitical tensions led to a sharp reduction in the value of ruble-denominated assets of Russia's key moneybox — the National Welfare Fund (NWF). As of December 2021, the losses of the National Welfare Fund amounted to 320.9 billion rubles. Of these, 257 billion were associated with a fall in the value of shares of Sberbank and Aeroflot.

Investors leave the Russian market as the United States threatens to impose more sanctions of Russia, should the conflict in Ukraine escalate.

In the event of a military escalation in Ukraine and the imposition of tough sanctions against Russia, the Russian ruble may fall sharply in price. This would push Russian regulators to take emergency measures to stabilize the financial market, RBC reports with reference to a report from Renaissance Capital investment company.

The Russian rule has already lost some of its value — about five percent — against the background of rising tensions in relation to the Ukrainian crisis. The ruble is currently traded at 76-77 rubles per one US dollar. The risk scenario with military escalation may devalue the Russian ruble to 85-90 rubles per one US dollar.

The United States has developed a draft of new restrictions, which includes, in particular, a complete ban on transactions with Russian government bonds, sanctions against major Russian banks, officials, restrictions on the Nord Stream 2 gas pipeline, elements of sectoral sanctions against Russian industries engaged in the extraction of mineral raw materials. According to publications in US media, the Biden administration has prepared a package of sanctions, including restrictions on the export of consumer technologies to Russia, such as smartphones.

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