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Oil price plunge hardly a disaster for Russia — expert

January 13, 2015, 13:48 UTC+3 MOSCOW
The price of the benchmark Brent crude hit a fresh low of 2009 on the Intercontinental Exchange (ICE) in London on Tuesday, falling by 3.9% to $45.58 per barrel
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© AP Photo/Hasan Jamali

MOSCOW, January 13. /TASS/. Low world oil prices are hardly a disaster for Russia as they create possibilities for restructuring the domestic economy, Rector of the National Economy Academy Vladimir Mau said on Tuesday.

“New realities are quite complex but like all realities they create some new possibilities for restructuring,” Mau said.

“There will really be some tough adaptation but the most dangerous thing would be to succumb to panic and take decisions with short-term effects without a medium-term prospect,” the economist said.

“I would not say that an oil price fall is unambiguously a boon but you can’t also say that it's a disaster,” he said.

It is much easier to quickly achieve low inflation and, correspondingly, low interest rates at low rather than high world oil prices, Mau said.

“I’m not saying that all this is good but you can’t fail to see that this also opens quite big opportunities for economic policy and helps resolve some issues that could not be resolved - we could not implement disinflation policy at high oil prices,” the economist said.

The price of the benchmark Brent crude hit a fresh low of 2009 on the Intercontinental Exchange (ICE) in London on Tuesday, falling by 3.9% to $45.58 per barrel while WTI decreased by 2.91% to $44.73 per barrel by 07:25 GMT.

The Russian ruble slumped further against the dollar and the euro on Tuesday amid the continued slide in world oil prices.

The US dollar opened higher on the Moscow Exchange on Tuesday, hitting a fresh high of 64.98 since December 17. By 10:25 Moscow time, the dollar rose by 1.55 rubles from Monday’s close to 64.72 while the euro climbed by 1.91 rubles to 76.59.

The world prices of oil, a major Russian export commodity, remain a dominant factor exerting pressure on the ruble, ING Bank Chief Economist for Russia and Kazakhstan Dmitry Polevoi said.

Infographics Oil prices over 30 years Oil prices over 30 years
Year-average inflation-adjusted oil price. Infographics by TASS

“The forthcoming tax period can lend only some support to the ruble; however, the ruble is likely to continue weakening further, unless oil prices recover,” the expert said.

“The ruble’s fall can only be restrained by the mandatory sale of foreign currency by state companies, which are under close control of financial authorities,” he said.

Only a contraction in supply on the oil market can help oil prices recover, Sloth Hansen, head of commodity strategy at Saxo Bank, said.

The number of operating oil rigs has dwindled by 8% in the United States and more than twofold in Canada since October 2014 and this factor may slow down the oil price decline soon, he said.

However, a risk still exists for oil prices to plunge to their lows registered in 2008 when the price of Brent fell below $40 per barrel, he said.

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