Mathias Bruggmann


Traditionally, the country’s dollar revenues come from gas exports. In the first quarter of this year, everything changed — for two reasons.

Two months were enough — in April and may alone, the Kremlin power earned $ 3.6 billion in gold exports. These are the data of the Federal customs service and the Central Bank of the Russian Federation.


According to the Federal customs service, Gazprom, a monopoly in pipeline gas exports, exported $ 2.4 billion worth of gas over the past two months. According to the preliminary estimate of the Central Bank, gas exports in the second quarter brought Russia 3.5 billion dollars — that is, less than gold exports in just two months.


There are two main reasons for this, one of which is devastating for Russia’s public finances.


On the one hand, gold exports have grown rapidly. In April and may last year, Russia exported $ 247 million worth of precious metal. The current jump is due, first, to the significantly increased price of gold, and second-to the volume of exports, which increased to 66.4 tons in the fourth and fifth months of this year.


“This situation has occurred for the first time in the history of our country,” says Maxim khudalov of the Moscow rating Agency ACRA. According to him, gas exports since at least 1994 bring the world’s largest country more revenue than gold.


The growth of gold exports is associated with coronarica and Western sanctions against Russia. Both, according to experts, led to the fact that the Russian budget was under pressure, and the Central Bank, which traditionally invests a lot in expanding state reserves, was forced to soften its policy.


Central Bank stops purchasing gold for state reserves


Therefore, the Central Bank decided to stop purchasing gold for the country’s state gold and foreign exchange reserves for the time being. In addition, most gold mining companies are obliged to sell gold to banks that Finance them because of credit agreements, khudalov notes.


The Central Bank’s complete refusal to purchase gold from domestic producers and the full start of the gold mining season after the snowmelt in Siberia are the main reasons for the sharp increase in gold exports, according to Alexey Zaitsev, Vice President of OTKRITIE Bank. To compensate for the departure of the Central Bank as a buyer, gold mines and processing plants were for the first time equalized in export rights with banks.


Previously, they could not independently export gold abroad, and banks first had to coordinate foreign transactions with the Central Bank. But now the Central Bank falls out of the chain as a source of demand.


The growing export of gold is the first reason, but the gas aspect also plays a crucial role in the new export reality in Russia. According to the Central Bank’s estimates, Gazprom’s revenues from gas exports in the second quarter of 2020 compared to the first quarter decreased by half, and compared to the same period in 2019 — by 2.6 times, that is, up to $ 3.5 billion.


Gas prices in free fall


In April and may, Gazprom delivered 24 billion cubic meters of gas to foreign customers — 21% less than in the same period last year. At the same time, the export price for Russian gas in may fell to $ 94.4 per 1,000 cubic meters, which was below the level of profitability. In may 2019, the price for export gas was $ 183.87. Analysts see the reasons for the collapse of gas prices after oil prices in the reduction of demand for energy due to the coronavirus pandemic, in crowded gas storage facilities in the West due to a relatively warm winter, as well as global warming.


“We expect gas exports to Europe to fall to 163 billion cubic meters in 2020, compared with about 200 billion in 2018 and 2019,” says Dmitry marinchenko, Director of natural resources at Fitch rating Agency. According to him, the average export price in 2020 will set an anti-record for the last 15 years.

“We expect it to be about $ 120 per 1,000 cubic meters,” marinchenko predicts. In 2006-2009, the average annual price was $ 294. According to Maria Belova, research Director at Vygon Consulting, the anti-record was set at the height of the ruble crisis in 1999: $ 57.5 per 1,000 cubic meters. But then, the price of oil was 12.72 dollars per barrel.


Suddenly: where does most of the Russian gold go?


It is interesting to note where most of the Russian gold goes. The main importer is great Britain, which accounts for about 80% of Russian exports of the “yellow metal”.


Back in 2019, Russia increased exports to the United Kingdom by 12 times — to 5.3 billion dollars, and this is despite the aggravation of bilateral relations after the attempted murder of former double agent Sergei Skripal and his daughter. From January to may 2020, the UK accounted for about 4 out of 5.1 billion dollars.


One of the reasons was, of course, the fact that London is the center of the global gold trade. In addition, this is where the largest physical metal storage facilities are located. The headquarters of many international investment funds specializing in gold are also located there. The inflow of “yellow metal” to these funds in the first half of the year reached, according to the world gold Council, a record level: 734 tons for 39.5 billion dollars.


The growth of gold exports from Russia, however, will not be able to compensate for the decline in revenues from oil and gas exports, warned Yegor Susin of Gazprombank. According to him, gold exports this year will make up less than 10% of the lost profit due to oil and gas exports.


“In any case, this will increase the trade and payment balance,” the expert is sure. But in the best years, Russia earned 60-70 billion dollars from gas exports, and all gold exports (even at the current very high prices) will not exceed 13 billion dollars.

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