Russia: Exports' pace of contraction accelerates in October and trade wars heat up
October 30, 2015
October’s trade data showed that Russia’s trade surplus totaled USD 10.0 billion. The result was well below the USD 14.7 billion observed in the same month last year. October’s surplus, nonetheless, came in slightly above the USD 9.6 billion surplus registered in the previous month. The trade surplus in October drove the 12-month rolling surplus to USD 154 billion (September: USD 159 billion), which is the lowest accumulated surplus since March 2011.
Exports of Russian goods totaled USD 26.8 billion in October, which marked a 35.4% contraction over the USD 41.5 billion registered in the same month last year. October’s pace of contraction was faster than the 30.8% drop see in September Meanwhile, imports were USD 16.8 billion in October, which were down a massive 37.4% over the level observed October 2014.
Trade wars heated up in recent weeks on two fronts for Russia. In Ukraine, authorities decided to ban Russian passenger aircraft across its territory amid a spiraling trade war against Russia. Tensions mounted this time due to Russia’s decision to stop gas exports to Ukraine and also as a result of the power blackout in Crimea. Moreover, tensions mounted after Turkey’s shooting down of a Russian military jet, which prompted Moscow to announce plans to impose sanctions against Turkey. The Russian government announced that all agricultural and food imports from Turkey will be subjected to special checks. Russia also moved ahead with cutting tourism ties. Russia’s Foreign Ministry announced a travel warning that recommended that Russian citizens refrain from visiting Turkey. According to official estimates, Turkey has benefited with revenues of about USD 10 billion a year from Russian tourists. The government is also studying additional measures, such as closing the country’s air space and ports to Turkish businesses and suspending joint investment agreements as well as social and cultural events.
In recent days, global oil prices experienced another period of strong volatility and the price of Urals oil touched a new multi-year low on 16 November, when prices traded at USD 38.3. The drop mainly reflected Russia’s move that aims to give a heavier discount for its Urals mix of bled oils to its European markets. Urals oils typically land in in Rotterdam, a major European destination, at a discount to Brent of around USD 2.00 or less. But the discount has widened to USD 3.50 lately, due to increased competition from Saudi Arabia. In the wake of tough economic circumstances and increased competition with Saudi Arabia, Russia has found itself with no choice but to squeeze as much out of its aging fields as it can. So far, it has succeeded to some extent. Russian oil production is expected to increase by 70,000 barrels per day this year, averaging 10.75 million barrels per day. Output hit a post-Soviet record of 10.78 million barrels per day in October, according to OPEC’s latest monthly report.
Author: Ricardo Aceves, Senior Economist