* Urals oil price falls below $100 per barrel
* Short-term impact on Russia limited by conservative budget
* Long-term fiscal risks mount
By Jason Bush
MOSCOW, Aug 19 A fall in the price of Urals
crude oil, the benchmark on which Russia bases its budget
calculations, is adding to the government's problems at a time
when western sanctions are already hurting the economy.
Urals, fell below $100 per barrel on Monday
for the first time in 15 months and was trading just below $97
on Tuesday, extending a trend of falling oil prices that
reflects abundant supply on global markets.
Russia relies on oil and gas for around two-thirds of
exports and half of federal budget revenues. Over the course of
a year, each $1 fall in the oil price wipes around $1.4 billion
off federal tax revenues.
The oil sector, along with finance and defence, is also
among the targets of western sanctions against Russia over its
annexation of Crimea and what the United States and European
Union say is its backing for separatist rebels in east Ukraine.
Analysts say the short-term pain from lower oil prices
should be limited, given the way Russia's budget has been
calculated, but strains will grow more severe if they fall
further in the years ahead.
"The first thing to remember is that the oil price projected
by the Finance Ministry is ... $104 average for the year - that
still looks conservative," said Vladimir Kolychev, chief
economist at VTB Capital. "Even if the oil price falls to $90
we'll still have $105 average."
He estimates that the budget presently balances at around
$103 per barrel - slightly more pessimistic than the Finance
Ministry, which projects a 0.4 percent budget surplus given its
$104 per barrel average oil price forecast for the year.
Russia's budget arithmetic is also helped by a steep fall in
the rouble, which has led the Finance Ministry to slash its
deficit forecasts for this year and next.
"The lower dollar oil price is to some extent mitigated by
the weaker rouble - that's an important point," said Neil
Shearing, chief emerging markets economist at Capital Economics
The short-term economic pain is also limited because, under
fiscal rules adopted two years ago, budget calculations are
based on the average long-term oil price, insulating spending
decisions from short-term market changes.
Today's price remains comfortably above $93 per barrel, the
"base" price used in the budget to cap government expenditures.
When the oil price is above this level, additional revenues are
earmarked for the government's rainy-day Reserve Fund.
"For this year there is no pressure on the Finance Ministry
because in the budget projections they still have about 300
billion roubles ($8.3 billion) to be transferred to the Reserve
Fund. They can simply not transfer that," said Kolychev.
The Reserve Fund, presently worth $87 billion or around 3
percent of GDP, is invested abroad in low-risk bonds of western
It is just one part of the $470 billion that Russia has
invested abroad in gold and forex reserves - a sizeable buffer
available to protect the economy from short-term shocks.
Nevertheless, analysts warn, lower oil prices are a
long-term concern for Russia as the fiscal reserves remain
relatively small, leaving the country vulnerable to possibly
steeper falls in the oil price in future.
Russia ultimately aims to increase the Reserve Fund to 7
percent of gross domestic product - a goal which won't be
achieved until 2019 on the government's projections.
The International Monetary Fund warned last year that until
the 7 percent target is reached, fiscal reserves will be "too
low to adequately insulate against a large drop in oil prices".
Rebuilding the reserves is "hugely important", said Shearing
from Capital Economics. "It doesn't take much of a fall in the
oil price to start pushing up the deficit to 3-4 percent of
GDP... Then 7 percent of GDP in terms of rainy-day savings
doesn't last you very long."
He calculates that at an oil price of $85 per barrel, Russia
would run a deficit of around 3 percent of GDP - enough to wipe
out the whole of the Reserve Fund in a single year.
"It sounds like a lot of money, but it can go quite quickly
if oil prices were to fall much further," he said, noting that
new production technologies are adding to the risk. "It's
perfectly possible given the shale oil revolution and the
increase in global supply."
(Reporting by Jason Bush; Editing by Mark Trevelyan)