Oil and gas revenues give Russia’s economy a $3.4 billion cushion

Russia has topped the fund cushioning its sanctions-hit economy with $3.4 billion in additional oil and gas earnings thanks to rising energy prices since the start of its war with Ukraine as it nears its first debt default since 1998 comes.

Moscow said on Sunday it would direct an additional Rbs 273.4 billion ($3.4 billion) into its rainy day fund, of which Rbs 271.6 billion came from oil and gas revenues it received in the first quarter of this year year has received.

The additional funds “will be used, among other things, to implement measures to ensure economic stability in the context of external sanctions,” the government said. According to the consensus forecasts of economists, the Russian economy is likely to shrink by 10 percent this year.

Nonetheless, revenue from commodity exports and tight capital controls have helped Moscow stabilize its currency and avoid financial collapse in the face of severe economic sanctions imposed by Western countries and their partners.

So far, Russia’s economy has been fueled by oil and gas revenues and draconian capital controls that prevent most foreign traders from abandoning their investments.

However, S&P Global Ratings this weekend downgraded Russia’s credit rating to a “selective default” after Moscow announced it would make payments on the final tranche of its foreign debt in rubles if they were due in dollars.

Russia has maintained payments on its dollar-denominated bonds since the invasion began, beating many investors’ expectations that Western sanctions and Russian exchange controls would propel the country into its first foreign-currency debt default since 1998.

but last weekMoscow had to make a $84 million coupon payment and $552 million in repayment of a maturing bond, for which it offered to pay in rubles instead of dollars, after US authorities blocked US banks from doing so to process the payment.

Moscow has a 30-day grace period to get the money to investors before it defaults, but S&P said that was unlikely.

“We do not currently expect that investors will be able to convert these ruble payments into dollars equal to the amounts originally due, or that the government will convert these payments within a 30-day grace period,” S&P said in a statement.

“Sanctions against Russia are likely to be further tightened in the coming weeks, hampering Russia’s willingness and technical ability to honor the terms of its obligations to foreign debt holders,” he added.

The US last week imposed its toughest sanctions on Sberbank, Russia’s largest financial institution, and Alfa-Bank, the country’s largest private bank, preventing lenders from doing business with US institutions or individuals. It also banned all new US investments in Russia.

At the end of last week, the EU also passed a fifth package of sanctions, including an import ban on Russian coal.

A default is considered selective if it affects some international repayments but not others.

Russia has said that any default – should it occur – would be “artificial” as it is able to pay, but if its foreign exchange reserves remain sanctioned it would make the payments in rubles.

Rating agency Fitch warned last month that an attempt to make dollar interest payments in the Russian currency would indicate “that a default or default-like process has begun.”

Additional reporting by Valentina Romei in London Oil and gas revenues give Russia’s economy a $3.4 billion cushion

Adam Bradshaw

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