The Kremlin said this week that President Vladimir Putin had ordered officials to study again the idea of hedging, which Russia — the world’s second-biggest oil exporter after Saudi Arabia — has looked at in the past but never implemented.
Interfax news agency, citing a source, said Putin’s aide Maxim Oreshkin, a former economy minister, had proposed using part of Russia’s $173.5 billion sovereign wealth fund to pay for hedges. The cash cushion was built up using oil revenues received by the state.
Nabiullina said on Friday that she was not familiar with the specific proposal, due to be delivered to Putin by July 30. She said, however, that she was opposed to emulating Mexico’s hedging policy or touching the NWF for such operations.
Mexico’s oil hedge is the world’s largest and has been a fiscal policy pillar for more than two decades.
It ensures Mexico, which exports much less crude than Russia, can sell oil at a predetermined price, guaranteeing a portion of revenues crucial for the state budget no matter what happens in the global oil market.
“If we are talking about hedging all volumes, we have big doubts that hedging markets would allow this operation to happen or it will be very expensive … In my view, this is not the best way to spend the NWF,” Nabiullina said.
Russia’s existing fiscal rule, which redirects oil revenues to the NWF if oil is above $42 per barrel, works well instead, the central bank chief added.
Major producers including Russia have agreed production cuts to try to shore up the price of oil, which fell from nearly $72 per barrel in January to below $16 in April, its lowest since 1999, as coronavirus lockdowns hit global demand.