Russia says it will pad its reserves with $3.2 billion of oil and gas proceeds to counter sanctions as the country faces its first default in over a century

• The Kremlin announced it will pad its reserves with $3.2 billion from Russia’s oil and gas sales.
• The funds will be used to stabilize the Russian economy against external sanctions, the Kremlin said.
• The Russian economy is expected to shrink 11% in 2022 due to the Ukraine war, per a World Bank forecast.

Russia will bolster its government reserves with 273.4 billion rubles ($3.2 billion) from its oil and gas sales, the Kremlin said on Sunday.

The funds will be used “to implement measures aimed at ensuring the stability of the economy in the face of external sanctions,” the Russian government said in a statement. It will fund the boost in reserves via “additional oil and gas revenues received in the first quarter of 2022,” the statement continued.

The Russian government’s reserve fund was set up to finance unforeseen expenses and significant measures that were not factored into the national budget, according to the Kremlin’s statement.

Russia is an energy powerhouse. The country accounts for 45% of the European Union’s (EU) gas imports, according to the International Energy Agency. Energy prices have soared this year on the back of the Ukraine war due to fears of trade disruptions over infrastructure damage and sanctions against Russia.

The EU is trying to wean off Russian energy imports on the back of the country’s atrocities in Ukraine. It’s banning Russian coal and is considering an oil embargo. However, the trade bloc has not mentioned a ban on natural gas due to its dependence on the fuel. Germany — Europe’s biggest economy — is particularly reliant on Russian gas.

The EU has paid $38 billion for Russian energy since Russia invaded Ukraine, a top EU official said Wednesday. That has helped contribute to Russia’s foreign exchange reserves, which rose marginally for the week ending April 1, the Russian central bank announced on Thursday. 

Despite sweeping sanctions, Russia’s coffers appeared to be holding up. The country was repaying its foreign debt on time until last Monday, when the US Treasury blocked the country’s payment in dollars held with US banks. Russia then transferred the money in rubles, which has bounced back to pre-war levels due to strict capital controls.

Ratings agency S&P Global on Saturday downgraded Russia’s foreign currency payments to a “selective default” after Moscow paid a dollar-denominated debt in rubles last week. Russia last defaulted on its foreign debt in 1917 during the Bolshevik Revolution.

The Russian economy is still expected to contract 11.2% in 2022, the World Bank said in a report released on Sunday. The country’s March oil and gas revenue was also 38% lower than Russia’s finance ministry forecast on March 3, according to data from the ministry, published Tuesday.

Russian President Vladimir Putin’s former chief economic adviser has told the BBC that Russia would end the war in Ukraine within a month or two if Western countries impose “a real embargo on oil and gas exports from Russia.”