In recent days, oil and the ruble have changed directions again, with both crude and the dollar declining. But for months, the Russian economy benefited as a rising oil price and a falling ruble refilled government coffers and sent profit soaring at the country’s giant energy groups. This year, shares of oil producers Rosneft Oil Co. and Lukoil Oil Co. are up 56% and 39%, respectively, handily outperforming Western peers.
“Russia is much better off with higher oil and a weaker ruble because, from a budgetary perspective, that’s a double positive,” said Viktor Szabo, emerging-markets debt-portfolio manager at Aberdeen Standard Investments.
Emerging markets generally have been hit by the rising U.S. dollar and interest rates, trade worries and domestic political concerns in individual countries such as Turkey. The ruble has the added weight of U.S. sanctions.
The risk for the U.S. is that sanctions aren’t having the intended effect, given how the combination of a weaker ruble and higher oil price is playing out.
At the end of last year, a barrel of oil brought in just over 3,835 rubles for Russian sellers, when translated back from the dollars it is sold in. Now, each barrel brings in 5,262 rubles, an increase of almost 40%.
Rosneft, the world’s largest listed oil producer, is one of those reaping the benefit. It reported a near-50% increase in earnings before interest, tax, depreciation and amortization in the second quarter, compared with the previous three months.
The sanctions are also helping the country lower its foreign debt at a time it had started to rise for the government and companies, according to Société Générale. That is occurring both as the fall in the ruble deters issuers from taking on dollar-denominated debt and amid concern the U.S. will impose sanctions on trading in Russia’s dollar debt.