The Ruble Is Independent Of Oil? Really?

by: Oleh Kombaiev


The Minister of Finance of the Russian Federation claims there is no direct relationship between the price of oil and the ruble exchange rate.

Formally, the share of oil in the total Russian exports has been reduced, which is associated with the weakening influence of oil on the ruble exchange rate.

Against the backdrop of the overall reduction of Russian exports, the quantitative growth of oil exports reinforces the ruble's dependence on oil prices.

In early June, Anton Siluanov, the Minister of Finance of the Russian Federation, stated, "... at the present moment, there is no strict and direct interdependence between oil and the ruble exchange rate." I disagree with the Minister's opinion.

Now the Russian media write a lot about the growth of non-commodity exports component, associating it with the weakening ruble's dependence on the oil price. According to the official statistics, in the period from 2010 until the end of 2014, the proportion of oil and oil products averaged 55% of the Russian exports, in comparison with 41% in Q4 2015. At the first glance, it's true.

Let's look at the situation from a different angle. First of all, it should be noted that the overall Russia's foreign trade activity is declining. In Q1 2016, the export and import of goods in Russia amounted to $60.22 billion and $37.86 billion, respectively. This is the lowest indicator for at least the past 5 years. It should be noted that imports is declining slower than exports.

As a result, the balance of trade also beats its records low, that, by the way, is in direct proportion to the weakness of the national currency. Meaning the whole of Russian exports, and not just the oil component, is declining with no evidence of improvement. Based on the results of Q1, only the export of grain showed growth. But its share in the total volume is too small to have a significant impact on the trade balance.

The situation becomes clearer when you look at the chart of Russian oil exports in volume and monetary terms. According to Q4 2015, the export of crude oil from Russia amounted to 64.6 million tons in volume terms, increasing by 13.3% over a year - and this, as we have already noted, happened in the situation of decreasing overall volume of exports. If we assume for a moment that the world oil price increases to the level of $60 per barrel, under the current scenario, the proportion of oil and oil products will reach about 60% of Russian exports - even above the average before 2014.

The statistical analysis also confirms the ruble's continuing high dependence on oil.

Earlier I demonstrated the model of interdependence between the USD/RUB currency pair and Brent oil barrel. The exponential model based on the weekly data for the period from 2013 to the present moment has a determination coefficient (i.e., predictive power) equal to 98%. This is almost a direct correlation.

If you build a similar model based on the observations of only 2016, its predictive power will be 89%, which also reflects a substantial dependence. In my opinion, the determination coefficient (r^2) should drop at least below 50%, in order to justify the opinion of the Minister.


In theory, a weak national currency boosts competitiveness in export markets. But this is true in cases where export products are able to compete on the quality parameters. The ruble fell but it did not reflect on the export growth. Therefore, the devaluation of the ruble and the build-up of oil exports, as the only competitive product, is the main way to fill the budget in the current environment. In this light, the potential of the ruble's strengthening seems negligible in comparison with the potential devaluation in the case of decrease in the oil price.

Note: Unless otherwise stated, all the charts included here are the author's own work.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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