The Global Economy returns to equilibrium

16 november 2018 | Federal News Agency

The global economy is returning to the kind of equilibrium it had early in the year, Chief Adviser to the Head of the Analytical Center Leonid Grigoriev said in an interview for RIA FAN. The expert talked about the impact of the oil prices on the Russian economy and noted the absurdity of the US sanctions that actually resulted in an increase in budget revenue in Russia and higher gasoline prices in the US.

Leonid Grigoryev
Leonid Grigoryev
Chief Adviser to Head of the Analytical Center

Brent oil fell below 65 dollars a barrel for the first time since March, WTI oil also fell below 55 dollars a barrel, the internet publication wrote. The decline in the price of oil is explained, among other things, by the relaxing of Washington's sanctions against countries that buy oil from Iran.

"The situation with oil is quite interesting," Leonid Grigoriev noted. "The agreement that Russia struck with the OPEK resulted in a kind of equilibrium in the oil market in 2016-2017, which helped spur economic growth around the world. It was a very good solution and it is still working. The price of oil, which fluctuated between 50-60 and 70 dollars a barrel until this summer proved to be the right equilibrium price for the global economy. In the end, the oil importing nations and most of the oil exporting nations are ok with it and it is not undermining demand for oil."

The expert also talked about how prior to the US imposing sanctions on Iran the oil prices had stabilized, among other things, the budget revenue in Russia, because both the amount of oil Russia was exporting and the ruble prices of this oil increased.

"One barrel of oil was selling for some 4,000 rubles, and that's the figure our budget revenue depends, not the dollar price, but the ruble price, and when the price of oil hovers around 4,000 rubles a barrel, it's a good equilibrium for our budget revenue," Mr Grigoriev said.

And that's the ruble price of oil that the chief advisor to the Head of the Analytical Center believes the price of oil should return to now assuming a relative stability of the dollar to ruble exchange rate. He did stress, however, that the sanctions Washington imposed on Iran actually played into Russia's hands: before they were relaxed the ruble price of oil reached almost 5,000 rubles a barrel. Meanwhile, the general public in the US were negatively impacted by the actions of their own government.

"New sanctions the US imposed on Iran caused the oil prices to soar by a good 20 dollars," Mr Grigoriev explained. "The prices that importing nations were paying for oil went up, and that included the US, because they still are importing oil and that drove up their gas prices at the pump. For several months before the mid-term elections the US tried to convince the OPEC to increase production in order to bring the oil price down. Nothing came of that, nobody did anything about it."

The expert noted that the current decline in the price of oil does not mean a sharp drop in budget revenue for Russia.

"The budget revenue is just going to go back to the normal level, because the price of oil we're seeing now is the price included in the 2019 budget at the current ruble to dollar exchange rate, and we've simply returned to those parameters now. The ruble is where it was, so this development has had little effect on us, whatever impacts it may have had have been very short term for the budget revenue and haven't influenced the key macroeconomic parameters," Mr Grigoriev summed up.

Source: Federal News Agency

Photo from open sources