More Uncertainty Over Oil Prices Ahead

Russia is set to face more uncertainty with oil prices in the future, Russian Finance Minister Alexei Kudrin told reporters at an investor conference hosted by Renaissance Capital on Tuesday. The former tendency, whereby a slower economic growth meant a slower oil price rise, seems to have changed, with oil prices soaring despite a global economic downturn, according to Kudrin.

“For Russia, this means that we should be prepared both for a sharp increase and for a sharp decline in oil prices,” he said, noting that the situation with oil prices was very unpredictable: they could either jump to $250 per barrel or plummet to $70 per barrel.

A higher price would be better for Russia, but a wise approach was needed to make the most use of this advantage, the Finance Minister warned. If oil prices continue to rise, and if oil revenues are spent quickly, the ruble will strengthen significantly.

Elaborating on the reasons behind surging oil prices, Kudrin said that he, like some of his colleagues from the other G8 nations, did not ascribed rising oil price rises purely to speculation on the markets. While on the contrary, OPEC officials insist on the speculative nature of climbing oil prices.

Kudrin also said that Russia still lacked the correct financial climate for innovative economic development. He said macroeconomic factors for innovative development could be achieved within the next two or three years. To improve its international rating, Russia needs to solve several problems, including curbing inflation, raising per capita GDP levels and developing an administration system.

Russia ranks 51st among international financial centers, according to Kurdin. He specified the criteria for the development of a country’s financial sector, including human capital, business environment, access to markets, developed infrastructure and competitiveness. “These factors cannot be created overnight. It will take many years for Moscow to become an international financial center,” he noted.

Once the global financial crisis is over, the confidence of foreign investors in the Russian economy will rise, Kudrin hopes. “We have passed the first trial even when faced with an international financial crisis,” he stated, expressing confidence that Russia would continue to maintain its economic stability as the crisis eases.

The Finance Minister also noted that Russia lacked such a strong credit history as the United States, which maintained foreign investor confidence despite economic problems. “We have had only eight successful years, but the last financial year showed that we have built a safety cushion to soften the adverse effects of the global market,” he concluded.

Kudrin stressed that curbing inflation was a priority for the Russian government. “This is a consolidated position,” he said, adding that the government was “in the permanent state of discussion” regarding the country’s key macroeconomic parameters, with regular meetings presided by Prime Minister Putin. “My proposals regarding the key priorities are being supported, and I am optimistic about our ability to achieve the goals set,” he said.

An anti-inflation program was to be submitted to the government on June 25, in accordance with Putin’s instructions, Kudrin added.