Sanctions are working: Russia does not eat reserves, but builds them up

Starting from May, Russia may start buying foreign currency for its reserves again. The country's budget has stabilized thanks to the growth of oil and gas export revenues, Bloomberg reports.

Photo: Nikolay Gyngazov/Global Look Press

The growth in revenues from the sale of energy products is already close to the target level. Since February of this year, the Russian Ministry of Finance has been selling reserves in Chinese yuan to cover the budget deficit. In April, sales collapsed by 50 percent compared to the beginning of the year. From May, purchases are likely to begin, Bloomberg notes.

Such purchases can be relatively small at first — an equivalent of about $200 million in yuan. For the time being, Russia currently replenishes the National Welfare Fund only by purchasing Chinese currency.

It is worthy of note that Russia's National Welfare Fund refused from the dollar last year and intends to bid farewell to the euro this year.

According to economist Alexander Isakov, the decision to start buying foreign currency again will prove Russia's ability to maintain the inflow of petrodollars in the face of sanctions.

"This will show that Russia is increasing its reserves instead of eating them through," he told Bloomberg.

Western countries have capped prices on Russian oil and petroleum products, the European Union embargoed deliveries of Russian oil, petrol, diesel fuel and fuel oil.

However, shipments of Russian oil to India have increased sharply. In April, they exceeded the total volume of oil supplies to this country from Saudi Arabia and Iraq. At the same time, a significant part of products from Indian refineries goes to Europe.

According to the Russian Ministry of Finance, the average price of Urals oil, the main Russian export oil brand, increased by 22.5 percent in April to $58.63 per barrel, but decreased by 1.2 times and in annual terms.

"The average price of Urals oil in April 2023 amounted to $58.63 per barrel, which was 1.2 times lower than in April 2022 ($70.52 per barrel)," the ministry said in a statement.

It turns out, though, that Russia is going to build up its reserves rather than eat them through. One shall assume that this is not the goal that the West wanted to achieve with it sanctions.